Green Construction: It's More Than Just a Fad

3/1/2013 - By Chuck Landers, CPA, CIT

In 21st century America, it seems that everybody is “going green.” It’s hard to open a newspaper or magazine or watch TV without hearing about one organization or another that’s going green or implementing new environmental “sustainability practices.” But these are not new concepts in the worlds of contracting and construction. Here in the U.S., green building and sustainability go back to the 1970s, when the energy crisis and concerns about the environment and pollution first hit critical mass. The green building and sustainability movements largely sprung from this, resulting in demand for more energy efficient and environmentally friendly construction practices.

What Exactly Is “Green Construction”?

Also referred to as green building and sustainable building, green construction refers to construction processes and building uses that help protect the environment, increase energy efficiency and reduce building carbon footprint, maintenance and operational costs. Sustainable construction incorporates a wide range of practices and techniques designed to reduce the negative impact that construction and buildings may have on the environment and the health of building occupants. According to the International Energy Agency, existing buildings are responsible for at least 40 percent of the world’s total primary energy consumption and 24 percent of global carbon dioxide emissions.

Green construction and renovation is designed to reduce the environmental impact of construction and building use by:

Using energy, water and other resources more efficiently.
Reducing waste, pollution and environmental degradation.
Improving building occupant heath and boosting employee productivity.

Green construction practices and technologies spring from a number of different principles, including the following:

Improving the efficiency of structure design and orientation
Boosting energy and water efficiency and reducing consumption
Increasing materials’ efficiency
Enhancing indoor environmental quality
Optimizing operations and maintenance
Reducing waste and toxins
Increasing local sourcing of building materials and landscaping elements

Green Construction Techniques

Contractors and building owners usually focus their green building efforts primarily in the areas of lighting, HVAC and hot water systems and building envelope. These areas tend to consume the most energy, so improvements and upgrades to these systems can drastically boost energy efficiency, create savings and hasten return on investment. There is a wide range of different green construction practices that can be utilized by contractors. Among the most popular are the following:

Lighting upgrades and retrofits — These are among the easiest and most cost-effective green building initiatives. Many local utilities will help pay for the replacement of old, inefficient metal halide lights with new, more energy-efficient fluorescent lighting fixtures.

Green roofs — Cool roofs and turf roofs reflect the sun’s heat and reduce roof temperatures by up to 75 percent, thus reducing energy costs. Replacing soggy or crushed roof insulation often offers an immediate operating cost savings as well.

Renewable energy sources — These include solar panels and photovoltaic techniques, as well as wind, hydro, geothermal and biomass for facility power generation and water heating.

Windows and insulation — Using high-performance windows and placing extra insulation throughout the building envelope (i.e., in walls, ceilings and floors) can result in significant energy cost savings.

Passive solar building design and “daylighting” — the strategic placement of windows in order to provide more natural light during the day and of awnings and trees to provide building shade — are other cost-efficient green construction techniques.

Water conservation and protection — Dual plumbing systems that recycle toilet water, rain water harvesting, low-flush toilets and urinals, low-flow shower heads, and point-of-use water treatment and heating systems are a few examples of these.

Any analysis of green construction must naturally include the additional costs of using green building techniques and materials. These can then be compared to anticipated savings — in energy costs, employee health and productivity, reduced waste, less environmental impact, etc. — in order to make educated decisions about which green construction practices make the most financial sense. Every building and project is unique, of course. But a paper titled The Cost and Financial Benefits of Green Buildings concluded that green buildings typically cost about two percent more to build, but they yield 10 times this much in savings over the building’s life. Other studies have demonstrated that green buildings may yield a return on investment of between $53 and $71 per square foot over a 20-year building life.

Valuable Incentives for Going Green

In performing your green construction cost-benefit analysis, be sure to take into consideration the various financial incentives that may be available to help reduce green construction costs. As noted above, for example, your local utility may help cover some (or perhaps even all) of the cost of lighting retrofits and new chillers and HVAC units. There are also valuable federal tax incentives that can lower green construction costs. Section 179D of the Internal Revenue Code provides an additional tax deduction for the construction of new high-efficiency buildings as well as energy-efficient retrofits to existing buildings. This deduction can significantly reduce the cost of incorporating energy efficiency into buildings. The deduction equals between $0.30 and $1.80 per square foot for installation of efficient the lights and HVAC systems as well as improvements to the building envelope of commercial properties.

The deduction typically goes to building owners as an incentive to make energy efficiency improvements. But engineers, architects and contractors who design energy-efficient buildings on public projects and systems can take the benefit directly for themselves. For example, the designer of energy-efficient systems for a 100,000 square foot public school building that meets the requirements to claim the maximum $1.80 per square foot can receive a $180,000 deduction. This is worth $72,000 to the designer, assuming a 40 percent tax rate.

Note that the Section 179D deduction expires on December 31, 2013, so you must act quickly to take advantage of it before the end of this year. This expiration date can be used to motivate prospective clients to move forward on their projects. The Section 45L Energy Efficient Home Credit is another federal tax incentive for green construction. It provides developers who build efficient residential properties with a tax credit of up to $2,000 per dwelling unit for new construction. The 45L Credit is also available for owners of certain low-rise, multi-family properties who make significant renovations that meet certain energy efficiency standards.

Due to the “per dwelling unit” language in the law, the total amount of this credit can be substantial. A 100-unit apartment complex, for example, could receive up to $200,000 in tax credits. The credit originally expired at the end of 2011, but the recently enacted American Taxpayer Relief Act extended it through the end of this year and made it retroactive to December 31, 2011. Understanding all the provisions and rules involved with these and other tax incentives can be daunting. A CPA can help make sure that you take full advantage of all the tax breaks available to you for your green construction initiatives.