The topic of energy efficiency and emerging technologies is not new to Washington, D.C., where some federal government programs date to the 1970s. However, the interest in developing and commercializing new technologies has never received as much attention from policymakers as it has in the past two decades – and more so in the past few years, starting with the Energy Policy Act of 2005 and continuing through the 2021 bipartisan infrastructure law and the 2022 climate law.
Easier said than done, policymakers often provide lip service to their constituencies stating that they support their priorities. Other times, the action behind words in Washington can mean millions and even billions of federal dollars toward an initiative, and this includes significant support for energy-saving incentives from the federal government.
A prime example is the recent funding increases for specific energy-efficiency and energy-saving priorities. In the FY2023 federal government spending bill, the Department of Energy’s Advanced Manufacturing Office (as it was then known) received $450 million in funding, a nearly fourfold increase over its FY2013 levels. Within that funding, $183.5 million went toward the Advanced Materials and Manufacturing Technologies Office (AMMTO) and $266.5 million to the Industrial Efficiency and Decarbonization Office (IEDO).
The AMMTO “researches, develops and demonstrates next-generation materials and manufacturing technologies,” while the IEDO supports “workforce development to drive energy, materials and production efficiency and also decarbonization across the industrial sector.” They provide federal dollars to companies, governments, laboratories and colleges and universities for “crosscutting technologies that improve the efficiency of technologies that are common to many industrial processes.” The department also funds grants for developing, and often implementing, new energy-saving technologies for buildings – from heat pumps to insulation to lighting.
Industrial decarbonization is a top priority for the Biden administration, but it is also an area of increased interest to the Energy Department predating the current White House occupant. In 2017, the Office of Energy Efficiency and Renewable Energy estimated that “between 20 to 50% of industrial energy input is lost as waste heat hot exhaust gases, cooling water, and heat lost from hot equipment surfaces and heated products.”
While many of the government’s solutions will not work for most companies, the Energy Department does provide resources. It developed some resources over a decade ago such as the Process Heating Assessment and Survey Tool (PHAST), which helps industrial users survey process heating equipment. The EPA has researched renewable industrial process heat, combined heat and power, and waste heat to power systems.
The Energy Department is by far the largest source of most federal energy-efficiency and energy-savings incentives. It offers programs including R&D grants for businesses, production incentives, loan guarantees and technology transfers. However, other federal departments and agencies offer incentives for energy efficiency and savings.
Tax credits are the obvious focus of the Treasury Department. Companies considering retrofitting existing equipment or constructing new facilities in the coming years should consult with their CPAs to identify opportunities in the federal tax code to help offset their investments. They should note that some tax credits and deductions enhanced by recent legislation may begin to phase down in the coming years, potentially impacting the timing of a project.
The investment tax credit (ITC) reduces the federal income tax liability for a percentage of the cost of a solar system that is installed during the tax year. The Commercial Buildings Energy-Efficiency Tax Deduction (Section 179D) allows building owners to claim a tax deduction for installing qualifying systems in buildings.
As with everything from Washington, D.C., there is always another side to the story. The Department of Energy is generally known to take a carrot approach to incentivizing companies to invest in new technologies, implement energy-saving strategies, and develop commercially viable energy-efficient tools and products. The billions of federal funding available, the loan guarantees to help reduce investor risk and the research partnerships have led to the development of technologies used in facilities across the United States.
The U.S. Environmental Protection Agency is the stick in this equation. While they do offer grants and funding to communities, they are more often the regulator seeking to force, rather than incentivize, industries to take a certain action. Recently, these actions include regulations focused on industrial emissions and energy consumption.
The National Association of Manufacturers commissioned a report by Oxford Economics showing that the EPA’s proposed air-quality regulations for particulate matter (PM2.5) could threaten $162.4-$197.4 billion of economic activity in the U.S. while placing roughly 900,000 jobs at risk.
The EPA lists 149 proposed and final rules pending on their most recent regulatory agenda list, which was made public earlier this year. Many of those also have a significant economic impact on employers and industry. In October 2022, the EPA released a final rule covering national emission standards for hazardous air pollutants from three major source categories: industrial boilers, commercial and institutional boilers and process heaters. The action finalized amendments to several numeric emission limits for new and existing boilers and process heaters.
The emergence of new technologies to reduce energy costs and improve efficiency will continue to receive federal government support. Incentives to commercialize and deploy the latest tools and products are an important way Washington can help industry instead of putting forward regulatory roadblocks.
Businesses can overcome hurdles, and I encourage all readers to explore with their CPAs and CFOs what federal, state and local grant, tax and loan incentives may already exist to help their business offset costs and increase investment.