President Biden introduced his historic $2 trillion infrastructure plan two weeks ago. While the plan addresses many aspects of infrastructure, including fixing roads, bridges and broadband, it also seeks to accelerate the country’s fight against climate change. We recently hosted a conversation between Vincent Barnes, SVP of Policy and Research at Alliance to Save Energy (ASE) and Metrus CEO Bob Hinkle on the many energy efficiency related policy implications on the bill.
The infrastructure bill that is being discussed is ambitious and has a big price tag to go with it. This begs the question – will the impact of this bill live up to its $2 trillion cost?
Hinkle: Yes, the dollar amount is huge, but the magnitude of the proposal is right given the challenges we face. We also need to look at this plan within the context of the costs we already pay because of climate change. I live in California, so I think immediately of wildfires. Last year, the Federal government spent $2.3 billion on fighting fires – and that’s only for fires. Over the last five years, the U.S. has experienced more than $500 billion in losses from climate-fueled weather disasters. On top of this, you can add things like the economic damages of what just happened in Texas. Once you start to add all of that up, $2 trillion looks pretty reasonable.
Barnes: The package must be viewed as investments spread over several years to fund projects and economic development to drive the economy for decades— and to a large degree better ensure the U.S. is more globally competitive. For the Alliance to Save Energy, investments in the future of energy are critical to the objectives of reducing carbon emissions and addressing climate change, which includes significant investments in transforming the electricity grid. For the grid itself to operate more efficiently as new energy resources come online, and to ensure our grid and distribution infrastructure facilitates utilization of advanced energy efficiency technologies, it is critical that these investments are made today. If we fail to do so, new energy technologies including energy efficiency will be slowed in their deployment, efforts to mitigate climate change will be frustrated, and projected energy savings for consumers will not be realized. The Alliance is engaging with the White House, Congress, and relevant agencies to help ensure that our key energy efficiency policy priorities are part of what might come out of a final package, including proposals reflective of access and equity.
Tax incentives for energy efficiency and clean energy will likely be a key part of an infrastructure package. What reforms are you tracking and what benefits could they bring?
Hinkle: When the tax code was originally written, energy efficiency was never thought of as its own asset class. Any efficiency equipment, be it a lightbulb or a boiler, is treated no differently than the bricks and mortar that make-up a building itself and is depreciated over a 39-year period. This creates a disincentive to invest since the depreciation period is longer than the term of a project (and the useful life of equipment) which can result in a negative after-tax cash flow. The 2017 Tax Cuts and Job Act (TCJA) temporarily resolved this for Qualified Improvement Property (QIP) which is largely thought of as something to help the retail industry but it also has a massive impact on energy efficiency investments. Although TCJA wasn’t focused on efficiency, it shortened the depreciation period for new building “QIP equipment” and provided for bonus depreciation. The benefits of QIP expire at the end of 2022, so a longer-term solution is needed. With this in mind, there are two actions to take: (1) extend bonus depreciation under the TCJA for an additional 5-years, 2) pass the [Energy Efficient Qualified Improvement Property Act (the “E-QUIP Act”)](https://www.rer.org/policy-issues/tax/energy-efficiency-tax-incentives
