By U.S. Senator Heidi Heitkamp

Energy independence isn’t just an economic matter for American consumers – it’s also a pillar of our national security. Dependence on overseas energy resources not only makes our country reliant on foreign, sometimes hostile nations, but it also takes away jobs and income from hard-working American families.

Sustainability incentives are quickly becoming a leading tool in getting Americans to reduce reliance on foreign fuels while also lessening their carbon footprint, covering both bases in a way that saves Americans money. These incentives not only promote energy independence, they also produce financial savings for taxpayers, and align with the Congressional goal of fostering a sustainable and economically resilient future.

Why Congress is Harnessing the Power of Sustainability Incentives

One reason for our dependence on foreign energy sources is that sustainable options are often too costly for the average American, leading many to do nothing at all. Congress recognizes this disconnect and is making sustainable practices both more cost-effective and convenient through tax credits and incentives. This strategy accomplishes three goals: strengthening our domestic energy position, promoting environmental sustainability, and saving Americans millions of dollars that can be reinvested into the economy.

Congress's approach is to incentivize both businesses and taxpayers to reduce their energy consumption by improving the efficiency of the most impactful systems of a building - its envelope and HVAC equipment. To achieve this, Congress created the 179D deduction in the Internal Revenue Service Inflation Reduction Act to support businesses working on sustainability in large structures, and the 25C credit to support the average American household in focusing on sustainability in their homes.

By synergizing the areas that need the most improvement regardless of building size, Congress is applying a wide approach to a singular, albeit quite large, problem. 

The Expanded 179D: A Pivotal Asset in the Fight for Energy Independence

One area where Americans use a considerable amount of energy is in our public spaces and commercial buildings. These structures make up 40% of all energy used in the United States, including 75% of all electricity usage. With their high electricity and natural gas usage, these buildings are prime targets for significant reductions. 

Recognizing the continued need for an incentive that focuses on the biggest energy users in the nation, Congress recently expanded the 179D Deduction. This powerful incentive has already resulted in a net reduction of energy consumption across the country for public buildings. Congress, recognizing this impact, has now increased both the types of buildings and entities that qualify as well as the maximum benefit.

To summarize the intent of the deduction: if a business works on the HVAC system, interior lighting, or building envelope of a commercial or tax-exempt-owned building, it can receive a sizable reduction to its taxable income. While it may seem simple on paper, think of the scale of this incentive in practice and how many types of buildings would fall into that category. Specifically, this means that work performed on the following could qualify:

• Hospitals
• Universities
• Courthouses
• Military bases
• Airports
• Stadiums

Recent legislation has now almost tripled the value of the deduction, bringing it up to $5 a square foot. Take for example an architecture firm located in the Midwestern United States. This firm specializes in work on public buildings, and in one year designed and completed work on multiple projects, including an airport, multiple schools, a correctional facility, and other federal buildings. As the deduction can be claimed on a project-by-project basis, this firm was able to claim for all projects during one tax year, multiplying any potential return by the scale of work performed. Considering the square footage of these projects, their total reduction in tax liability amounted to nearly $2 million, allowing them to reinvest those funds back into their firm and continue taking one new projects.

How 25C is Empowering the American Homeowner

25C, officially the Energy Efficient Home Improvement Credit, was originally enacted in 2005, but has been recently expanded to encourage further usage of the credit. Like 179D, this credit focuses on specific improvements that conserve energy, centering around the building envelope and building envelope. To qualify for the credit, the house being improved must be the primary residence of the taxpayer, be in the United States, and any changes must be implemented during the tax year that a homeowner claims the credit.

Now worth up to $3,200, this credit can help homeowners offset the cost of these improvements by lessening their tax liability. Like 179D, this credit targets the two main energy-intensive aspects of any structure.

Previously incentivizing improvements to home heating systems, 25C has now been expanded to include improvements to a variety of areas, including:

• Windows and doors
• Insulation
• Heat pumps
• Stoves & boilers

The key feature in the recent expansion of this credit is the removal of the lifetime dollar limit. This means a homeowner can qualify for this credit year over year based on the continued improvement to their home, all the way through the year 2032.  25C allows even the smallest of units to take an active stance on reducing their energy usage, allowing all Americans to support the fight for energy independence.

The Road Ahead: How American Sustainability Will Remain Crucial to Our Energy Independence

Sustainability incentives like 179D and 25C are paving the way for Americans to use less energy and make themselves and their properties less reliant on foreign resources. By fostering a culture that focuses on American independence and sustainability, Congress has made it simpler for the average American to save money and be environmentally conscious at the same time.  Through these initiatives and others like them, the US is preparing itself for decades to come, and ensuring it is in the best position possible to face challenges with energy and the environment.