Three new IRA incentives make it cheaper and easier to decarbonize buildings

Renewable energy is now cheaper than fossil fuels, which presents a huge opportunity to cut costs and emissions in commercial buildings. Switching to solar energy in the U.S. could reduce commercial property owners’ electricity costs by an average of 75%. Building retrofits with existing climate technologies can cut energy use in commercial buildings by 40%, with a return on investment after just 15 months.

Yet today, fossil fuels still make up the vast majority of commercial power sourcing. As cities and states continue to pass regulations to phase out the use of fossil fuels in advance of 2030 climate goals, companies are well-positioned to mitigate risk while federal tax incentives are available – and save money.  

While most energy efficiency upgrades pay for themselves over time and generate ongoing cost savings, the new IRA incentives are a game-changer for companies to save while scaling solutions. Environmental Defense Fund’s new guide, Building Energy Efficiency: Inflation Reduction Act Activation Guide, created in partnership with Deloitte, outlines three major tax incentives in the Inflation Reduction Act. Procurement, finance, and sustainability teams can capitalize on these new incentives to modernize commercial buildings and accelerate climate-smart upgrades. 

Three Inflation Reduction Act Incentives to Prepare for Now

  • Decarbonize buildings: The §179D tax deduction for developers and contractors nearly tripled the existing incentive from $1.80 per square foot to potentially $5 per square foot. The 179D tax deduction activated on January 1, 2023, and is available to use now.
  • Invest in renewable energy and storage: IRA increased and expanded the §48 investment tax credit for investment in renewable energy projects, including but not limited to: Fuel cell, solar, geothermal, small wind, standalone energy storage, biogas, microgrid controllers, and combined heat and power properties. This tax credit is available to use now; eligible for projects beginning construction before January 1, 2025. 
  • Invest in clean electricity generation: The §48E Business Energy Investment Tax Credit (ITC) provides a tax credit of up to 30% of the upfront cost of a “qualifying energy property” such as a solar, wind electricity generation and standalone battery storage projects. Businesses are eligible for this tax credit after 12/31/2024.
The Climate Case
Installing energy efficient technologies could help reduce commercial building energy emissions by an estimated 46%, or 200 MT CO2 annually for a typical building.
Example Commercial Building (50,000 sq ft) GHG Emissions Footprint by Source Pre- and Post-Energy Efficiency Investments (in MT CO2)

Cutting energy bills is good for bottom lines, for the planet – and a key win for companies with net zero goals. The buildings sector is responsible directly and indirectly for around one-third of global emissions, according to the International Energy Agency. Technologies are available today that can replace the traditional fossil fuel infrastructure, generating efficiencies immediately. Installing energy efficient technologies could help reduce commercial building energy emissions by an estimated 46%. 

How to Engage Your Suppliers to Multiply Climate Benefits and Cost Savings

Leading companies with net zero commitments are well positioned to work with suppliers to take up the new tax incentives, which can help advance measurable scope 3 emissions reductions. The food sales and services, technology and science and healthcare sectors utilize the most energy per square foot in buildings (see Fig. 2). The new EDF guide is the perfect resource for the most energy-intensive sectors to save money and reduce emissions. 
Existing technologies, energy efficiency upgrades and electrification are easier and less expensive than ever before. The new report estimates the average 50,000 square foot building could generate an estimated $170,000 in net present value (NPV) profit over five years.

Average Site Energy Use Intensity (EUI) by Sector

The Inflation Reduction Act incentives for buildings decarbonization helps companies make cost-saving and environmentally friendly retrofits for commercial buildings:

  • Building envelope;
  • Heating, cooling, ventilation and hot water;
  • Interior lighting; and
  • Renewable energy technologies such as geothermal heat pump projects.

Co-Benefits to Cutting Buildings Emissions

Switching to cleaner energy sourcing for commercial buildings reduces reliance on fossil fuels and cuts air pollution. Increasing buildings’ efficiency and use of cleaner energy is a win-win for the companies and for the health of people in the communities where companies operate.

Join a Community of Companies Taking the Lead 

We can’t achieve net zero without decarbonizing buildings. Across the commercial building sector, more than 40 companies have joined DOE’s Better Climate Challenge where they’ve committed to reducing portfolio-wide GHG emissions by at least 50 percent by 2030.

If your company is looking to save money while reaching your sustainability goals, EDF’s IRA Activation Guide for Building Energy Efficiency is a great place to start. 

Read the latest guide from Environmental Defense Fund and Deloitte to learn more.