EFFECTS OF EXTENDING AND EXPANDING ENERGY-EFFICIENCY TAX DEDUCTION - - PowerPoint PPT Presentation

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EFFECTS OF EXTENDING AND EXPANDING ENERGY-EFFICIENCY TAX DEDUCTION FOR COMMERCIAL BUILDINGS what does REMI say? sm what does REMI say? sm Prepared by Regional Economic Models, Inc. (REMI) Agenda Overview of 179D tax provision Energy

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what does REMI say? sm what does REMI say? sm

EFFECTS OF EXTENDING AND EXPANDING ENERGY-EFFICIENCY TAX DEDUCTION FOR COMMERCIAL BUILDINGS

Prepared by Regional Economic Models, Inc. (REMI)

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Agenda

 Overview of 179D tax provision  Energy efficiency and economic growth  Policy/modeling context  About REMI  Overview of key results  Lunch  Walk through simulations

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Overview

 Congress has sought to promote energy efficiency

through financial incentives – why?

 Energy independence – less reliance on foreign fuel  Insulate from fluctuations of energy markets  Efficiency gains via lower utility bills

 Incentives can encourage the private sector to find

best practices for conserving energy

 Incentive programs can help the economy through

tax benefits and energy savings

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Incentivizing Energy Efficiency

 Section 179D Energy-Efficiency Commercial Buildings Tax

Deduction

 Deduction to provide incentive for companies to design

and build energy-efficient structures

 Program created through the Energy Policy Act of 2005  The provision has never been made permanent  Expired and reinstated multiple times over the years  $38 billion per year in commercial lighting costs

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Deduction rules

 Deduction of up to $1.80 per square foot available to owners of

new or existing buildings who install:

 (1) interior lighting; (2) building envelope; or (3) heating,

cooling, ventilation, or hot water systems

 Must reduce the building’s total energy and power cost by a

certain percentage compared to minimum professional standards (ASHRAE standards)

 What about tax-exempt building owners?  Allocate to architect/engineer/contractor responsible for design  Savings must be calculated using qualified software  Qualified 179D certifiers must verify

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Mechanisms

 Extending the program could yield economic

benefits

 Higher investment in services and materials  Lower energy use over time  Upfront investment; high labor use  Energy employs fewer workers

 Economic analysis does not capture all of the non-

economic benefits – environment, energy independence, grid maintenance, etc.

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Buildings Share of U.S. Primary Energy Consumption, 1980-2010

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

U.S. Primary Energy Consumption

Residential Buildings Commercial Buildings Industry Transportation

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Commercial Sector Energy Consumption, 1980-2010

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1980198119821983198419851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007200820092010

Commercial Sector Energy Consumption

Natural Gas Petroleum Coal Renewable Electricity

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Commercial Building Energy Usage

26.3% 6.3% 18.5% 11.8% 8.6% 2.0% 5.8% 4.7% 0.5% 15.6%

2010 Commercial Energy End-Use by Fuel Type

Lighting Space Heating Space Cooling Ventilation Refrigeration Water Heating Electronics Computers Cooking Other

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Policy/Modeling Context

 Tax reform key to Trump and Ryan agendas  Deductions across the board are potentially on the

table for revision/expiration

 New administration is willing to “invest” in the

form of tax expenditures

 Compelling jobs and economic growth argument

are critical to making this case

 179D relationship to private sector

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Scope of Analysis

 REMI evaluates the economic impact of three

separate scenarios:

Extension of Current Law Extend and Expand Strengthen and Modernize

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Data/Assumptions

 Energy Tax Savers, Inc. – 179D certifiers

 $3.12 of private investment per $1 of tax incentive  $0.08 of energy efficiency savings per $1 of tax

incentive

 Project costs  Labor costs: 30%  Materials costs: 70%  Project types  HVAC: 75%  Lighting: 25%

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About

  • Research
  • Forecasting
  • Consistency

Data

  • Dynamic
  • Customized
  • Integrated

Software

  • Consulting
  • Training
  • Support

Services

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Framework

750 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 2012 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 2051 2054 2057 2060 Economic/Demographic Indicator Control Forecast Policy A Policy B

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Regions

 How REMI defines

model regions:

 A county or…  A collection of counties

 e.g. an MSA or a state  Can cross state borders

 Multiple regions

 No requirement for

contiguousness

 Customized by needs

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Methodologies

Input-Output (IO) Tabulation

  • Industry-to-industry transactions and social accounting matrices
  • Supply chains, regional purchase concepts, and multipliers

Computable General Equilibrium (CGE)

  • Long-term effects after markets “clear” back to an equilibrium
  • Dynamic adjustments to population, fuel mixtures, market shares, etc.

Econometrics

  • Estimation of statistical parameters from historical data
  • Strength of responses, elasticities, preferences, and “time lags”

New Economic Geography (NEG)

  • Endogenous productivity adjustments from industry/labor clustering
  • Full trade flows by industry and interregional competitiveness
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Client Types

State and Local Governments

  • Montana Department of Commerce (DOC)

Economic and demographic forecast for 56 counties

  • Southern California Association of Governments (SCAG)

Impact of the $500 billion long-range transportation plan

Federal Agencies

  • Sandia National Laboratory (SNL)

Integration of REMI with energy and financial models

  • U.S. Army Corps of Engineers (USACE)

Environmental impact of closing Chicago River freight locks

International

  • Alberta Enterprise and Advanced Education

Supply chain implications for oil and gas developments

  • Korean Energy Economics Institute (KEEI)

Development and energy policy for the 10 provinces

Consultants

  • Booz Allen Hamilton

Impacts of new technology on macroeconomic growth

  • Cambridge Systematics

Tolling options for Interstate-95 in North Carolina

Academic Institutions

  • Florida State University (FSU)

Contribution of university system to Florida’s economy

  • University of Michigan

Budget planning and tax credit analysis for Lansing

Non-Profits and Research Groups

  • National Federation of Independent Business (NFIB)

Healthcare reform and tax credits for small businesses

  • Third Way

State-by-state impact of the “fiscal cliff” and sequestration

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Input Variables

 Energy efficiency – production cost  Industry tax deductions – production cost  Architect/designer deductions – production cost  Equipment purchases – detailed investment*  Maintenance and repair – industry sales  Reduced electricity generation – utilities (output)

* “Stock” concept, meaning there are future offsets that are accounted for

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Scenario Impacts

INDICATORS

Extension of Current Law Extend and Expand Strengthen and Modernize Jobs

40,749 39,388 76,529

GDP (millions of 2016 dollars)

3,860 3,730 7,398

Personal Income (millions of 2016 dollars)

3,128 3,017 5,729

Results of this analysis show positive economic impacts over the first ten years in terms of job creation and economic expansion.

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Extend Current Law

 Based on PATH Act of 2015  $324 million JCT score over ten years for a two-

year extension

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Extend Current Law - Jobs

10000 20000 30000 40000 50000 60000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Job Gains - Extension of Current Law

Total Average

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Extension – Jobs by Industry

Utilities

  • 2%

Construction 20% Manufacturing 9% Trade 10% Professional Services 6% Health Care, Social Assistance 7% All Other Industries 46%

Industry Job Gains and Losses - Extension of Current Law - Average Ten Year Impact

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Extension – Output & Income

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Average

Economic Measures - Extension of Current Law (billions of dollars)

Gross State Product Personal Income Output

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Extend and Expand

 Extension of current law  Extend to non-profit entities  Extend to tribal governments  Increase applicable energy efficiency standards

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Extend and Expand - Jobs

10000 20000 30000 40000 50000 60000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Job Gains - Extension and Expansion

Total Average

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Extend and Expand – Jobs by Industry

Utilities

  • 2%

Construction 20% Manufacturing 9% Trade 10% Professional Services 7% Health Care, Social Assistance 7% All Other Industries 45%

Industry Job Gains and Losses - Extension and Expansion - Average Ten Year Impact

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Extend & Expand – Output & Income

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Average

Economic Measures - Extension and Expansion (billions of dollars)

Gross State Product Personal Income Output

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Strengthen and Modernize

 Increase value of deduction

 $1.80/square foot to $3.00/square foot

 Increase the applicable energy efficiency standards  Adjustments to building eligibility  81% private, 19% government investment (per

BEA)

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Strengthen and Modernize - Jobs

20000 40000 60000 80000 100000 120000 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Job Gains - Strengthen and Modernize

Total Average

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Strengthen and Modernize – Jobs by Industry

Utilities

  • 2%

Construction 22% Manufacturing 10% Trade 12% Professional Services 7% Health Care, Social Assistance 8% All Other Industries 39%

Industry Job Gains and Losses - Strengthen and Modernize - Average Ten Year Impact

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Strengthen and Modernize – Output & Income

0.0 5.0 10.0 15.0 20.0 25.0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Average

Economic Measures - Strengthen and Modernize (billions of dollars)

Gross State Product Personal Income Output

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Conclusion

 Extending and expanding the Section 179D Energy-Efficiency

Commercial Buildings Tax Deduction will create jobs and expand the nation’s economy

 Extending the program leads to an average annual gain of

43,453 jobs, $4 billion in gross domestic product, and $2.9 billion in personal income over first five years

 Strengthening and modernizing the existing program can

yield even more substantial economic gains