Less than two years ago, U.S. automobile drivers were facing gasoline prices that topped $2.25 per gallon, and much of the country was confronting either energy shortages or potential blackouts. Although the banner headlines about an energy crisis may have disappeared, the underlying problems confronting the United States and its economy remain. To help mitigate volatile energy prices in the future, NRCA has proposed an ambitious energy-efficiency program that will go far in advancing a balanced energy policy that promotes conservation, decreases U.S. reliance on overseas petroleum sources and protects the environment.
The energy predicament
The United States has made tremendous strides in energy efficiency since the Arab oil embargoes of the 1970s, but despite such advances, the statistics paint a bleak portrait of the United States' energy future. Consider the following: Domestic production of crude oil has declined from 9.6 million barrels per day to 5.8 million barrels per day since 1970; the number of operable U.S. refineries declined from a high of 315 in 1981 to 155 in 2000; and there has not been a new major oil refinery built in the United States in more than 25 years.
At the same time, petroleum consumption has grown and is projected to continue growing at an average annual rate of 1.5 percent through 2020, according to the U.S. Department of Energy's (DOE's) Energy Information Administration (EIA). According to EIA, net petroleum imports are projected to increase to 62 percent of U.S. demand by 2020. EIA also estimates that during the next 20 years, U.S. oil demand will increase 33 percent; demand for natural gas will grow 62 percent; and electricity demand will rise 45 percent.
And according to the Alliance to Save Energy, a broad-based coalition of industry representatives, communities and associations that support the promotion of energy-efficient technologies, insulation alone reduces the cost to heat and cool the average single-family home 48 percent. In addition, DOE states modest increases in energy efficiency would eliminate the need for 600 new power plants. Although great progress was made during the 1970s and 1980s to increase energy efficiency through insulation, residential energy consumption would decrease at least 30 percent if existing homes were retrofitted to ENERGY STAR® levels and include higher insulation R-values.
Alliance to Save Energy data also show that if the 20 percent of existing commercial buildings that don't have insulation were retrofitted, the equivalent of 83.5 million barrels of oil would be saved every year.
The sobering statistics present policymakers with a daunting task—how to tackle a looming energy crisis. If you were to only consider the political rhetoric, you might be led to believe the crisis could be solved through either conservation or increased production alone. But such thinking is fantasy. Not many outside the hardcore environmentalist community claim conservation alone is the answer. Any lasting solution will require a policy grounded in production and conservation.
For its part, NRCA is doing what it can to improve the demand side of the equation by focusing its efforts on energy-efficiency initiatives. NRCA serves on the steering committee of the Alliance for Energy and Economic Growth and believes the need for a comprehensive energy policy to generate a greater supply and promote conservation is crucial. NRCA supports the Bush administration's energy plan for the following reasons:
The tax problem
Despite the desire to save energy, there are strong disincentives for building owners to replace inefficient roof systems. Chief among those impediments is the current tax code, which provides for an unreasonably lengthy depreciation period for roof systems—39 years. The current depreciation period reduces a building owner's incentive to invest in improvements, such as better insulation. This is true particularly if a building owner does not intend to occupy his building himself.
As with many areas of public policy, the federal government has sent mixed signals regarding energy efficiency. On one hand, tax incentives to spur greater energy efficiency are all the rage (receiving broad bipartisan support) and steadily have been growing in popularity during the past two decades. But this popularity growth has run concurrent with legislative initiatives that have lengthened the depreciation period for real property.
Current proposed tax incentives undoubtedly will compel some building owners to construct more energy-efficient structures or retrofit existing buildings, but if Capitol Hill truly is interested in promoting a change in behavior, it must reconsider the un-reasonable recovery period for roof systems. Only with multiple and complementary incentives incorporated into the decision-making matrix are we likely to see significant energy-efficiency gains.
NRCA urges Congress to amend Section 168 of the Internal Revenue Code to allow for a new depreciation class life for roof systems. Before the 1980s, separate building components could be depreciated at different rates, but in 1981, Congress eliminated component depreciation and put in place a 15-year general depreciation period for all building components.
In 1993, the recovery period for nonresidential property more than doubled to 39 years to raise revenue. As a result of the current 39-year depreciation period, business owners often delay or forego roofing expenses because they tend to be costly and the depreciation schedule discourages the assumption of such an expense.
NRCA questions whether the replacement of structural components or investments, such as roof systems, should be depreciated during 39 years when such components have significantly shorter useful lives. The typical contractor warranty is one year to two years and usually runs concurrent with a 10- to 20-year manufacturer warranty. The inability to recognize a loss on the replaced component places tax-payers in the position of having to continue to depreciate replaced or abandoned components because tax depreciation is slow relative to economic depreciation.
Delaying needed repairs poses concerns. First, aging, inefficient roof systems are less energy-efficient than new or retrofitted roof systems. Second, faulty roof systems suffer moisture infiltration, which can lead to permanent structural damage. And finally, the repair cost of a neglected roof system usually is greater than the cost of the original repair or reroofing estimate.
Adoption of a new class life would satisfy two goals—enhanced energy efficiency and a growth impetus for the lagging construction industry. With a new depreciation schedule for roof systems, business owners no longer will delay needed roofing-related work, opting instead to purchase newer, more efficient systems.
If the number of years over which a property depreciates and number of years on a warranty are commensurate, a business owner would not risk structural damage to save a few dollars.
What is the market?
On a positive note, growing awareness of energy efficiency has given rise to a new market as consumers seek to decrease energy costs. The roofing industry has responded to this market to some degree—roofing contractors, roof system designers and building owners have grown more sophisticated and aware of their design and purchasing options.
The roofing industry's challenge is to define the market opportunity for roofing materials that achieve maximum environmental performance and conserve energy. Next, it will be necessary to create and implement the right incentives to develop this market.
Toward that end, NRCA is developing a decision-making matrix contractors, roof system designers, environmental consultants and building owners can use that will take all the issues into account. This matrix will help contractors, building owners and roof system designers make informed decisions about energy-efficient roof systems.
Nongovernmental opportunities also hold great potential for building on federal initiatives. For instance, promising opportunities rest in rebates and/or discounts that can be established with local utilities.
Utilities could provide a critical extra margin of encouragement for consumers, particularly residential customers, to assume the expense of energy-efficient upgrades. Already, several utilities have implemented rebate programs for customers who use energy-efficient equipment and systems.
In addition, NRCA has committed itself to the following steps:
Such activities will produce environmental benefits by relieving the pressure on the United States' energy grid and reducing the urgency of new energy production. And NRCA's activities will help consumers by providing solutions that are cost-effective and yield immediate savings.
R. Craig Silvertooth is NRCA's director of federal affairs.
The politics of energy
Faced with rising gasoline prices and unrest in the Middle East during the past two years, the U.S. House of Representatives and Senate responded with palpably different approaches to crafting a new national energy policy. Two major pieces of energy legislation were put forth in the 107th Congress:
Despite the seeming urgency of addressing the nation's energy needs, the 107th Congress was unable to pass even a scaled-back version of its energy bill before it adjourned in November 2002. After nearly two years of wrangling, the process ultimately fell apart during conference negotiations when Senate conferees refused to budge and walked out on the process.
So what are the prospects of success in the 108th Congress? Incoming Senate Energy and Natural Resources Committee Chairman Pete Domenici (R-N.M.) says that though negotiations ultimately failed in the 107th Congress, negotiators laid the necessary foundation for passing a better energy bill in the current Congress. And given that passing a comprehensive bill is one of President Bush's highest priorities, Congress likely will pass legislation this year.
The energy bill crafted by Senate Democrats will be one of the first items on the chopping block. The Republican version likely will include a provision permitting drilling in Alaska's Arctic National Wildlife Refuge (ANWR); Democrats already have promised to filibuster the provision. But numerous provisions from the 2002 bill will make the cut and include the following:
With Republicans controlling Congress, the administration also will expand its efforts to open Western lands to increase oil and natural gas development. The GOP also likely will promote nuclear power in the hopes of diminishing reliance on Mideast oil, possibly paving the way for resuming construction of nuclear power plants in the United States.
Fortunately, there is broad bipartisan support for energy efficiency. To be certain though, there also is a vast spectrum of opinion about the solvency of such initiatives. Successful passage will depend on the ability of policymakers to maintain a broad consensus and keep inflammatory political rhetoric in check.
Regardless of the outcome, you can bet energy will be a central campaign issue in 2004—either with Republicans claiming success if they manage to craft and implement a bill, or with Democrats using the environment as a rallying cry if ANWR is opened to drilling.