Last Friday Congress passed and the President signed into law the Emergency Economic Stabilization Act, which revised the $700 billion financial rescue package and added $150 billion of tax breaks and incentives. Significantly, included among the tax provisions are $18 billion of tax credits for innovating clean power and energy efficiency systems and conservation, including everything from extending the all important energy efficient commercial building deduction to creating a new tax credit for electricity created by waves, tides or ocean currents.

By way of background, a host of existing federal Green building and renewable energy tax credits were set to expire at the end of 2008. Extensions of those tax provisions were a component part of several of the attempted energy bills that failed to obtain Congressional approval this year.

Comprising more than 100 pages of the total 451 page H.R. 1424, within a section entitled the “Energy Improvement and Extension Act of 2008”, most of the broad sweeping clean energy provisions, that affect both business and individuals, are amendments to the Internal Revenue Code. If you have an interest in Green building and sustainable development, here is your bailout:

Energy Efficient Commercial Building Deduction.

Among the most significant provision of the Energy Act that advances Green building is the five year extension, through 2013, of the federal income tax deduction for the cost of certain energy efficient equipment installed in commercial buildings, that may be a deduction of as much as $1.80 per square foot of building floor area for buildings that achieve a 50% reduction in energy and power costs. This tax deduction for a taxpayer who owns a commercial building and makes improvements “as part of the building’s interior lighting systems; heating, cooling, ventilation, and hot water systems; or building envelope” was set to expire at the end of the year.

Energy Credits.

The tax credit for investments in solar energy equipment is extended through January 1, 2017, and the credits for investments in fuel cells and microturbines is extended through December 31, 2016. The credit limitation for fuel cells is increased from $500 to $1,500 per half kilowatt of capacity. And the credit of up to 30% has been expanded to include “qualified small wind energy property” and, although at a lower threshold, the tax credit has also been expanded to include geothermal heat pump systems. In a major policy shift, public utilities are now eligible for the tax credit.

Renewable Energy Credits.

The emergency Act grants a one year extension of the production tax credits for wind and refined coal facilities that must now be placed in service by January 1, 2010. Certain other facilities, such as geothermal, closed loop and open loop biomass, hydroelectric, landfill gas, and trash combustion facilities, were granted a two year extension to be placed in service until January 1, 2011. The law also creates a production tax credit for electricity produced from marine renewables, which marine and hydrokinetic energy is derived from waves, tides, and currents in oceans, estuaries, and tidal areas, which are placed in service before January 1, 2012.

Plug In Electric Motor Vehicle Credit.

A new tax credit was created for buyers of plug in electric drive motor vehicles. The base dollar amount of the tax credit of $2,500 is increased $417 for each kilowatt hour of traction battery capacity in excess of 4 kilowatt hours, with a cap on the credit ranging from $7,500 to $15,000 depending upon the weight of the vehicle. With an estimated cost of $758 million, this provision phases out one year after 250,000 plug in electric vehicles are sold.

Alternative Fuel Vehicle Refueling Property Credit.

Electric vehicle recharging stations are added to those properties eligible for the Alternative Fuel Vehicle Refueling Property Credit of $30,000, or up to 30% of their cost. The credit is also extended through December 31, 2010.

Energy Efficient Home Credit.

For homeowners, the bill removes the current $2,000 tax credit cap for residential solar electricity installations, now permitting a homeowner to reduce their taxes by up to 30% of the solar project’s cost. The credit is also expanded to include installation of residential small wind turbines to generate electricity, capped at $4,000 and, geothermal heat pump systems, capped at $2,000. The tax credits each run through December 31, 2016.

Individuals will also be eligible for tax credits, under the Modifications Of Energy Efficient Appliance Credit, for energy efficient home appliances from $45 for certain dishwashers to $150 for certain top loading clothes washers.

Fringe Benefit To Bicycle Commuters.

The new law creates a permissible exempt from taxation fringe benefit from employers to bicycle commuters of “any qualified bicycle commuting reimbursement” which is defined to include “.. the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used” to commute. Curiously, this provision only carries an estimated cost of $2 million because the benefit is capped at $240 per year.

The bailout bill also creates Energy Conservation Bonds targeted at both local government and the private sector; extends the funding for green building and sustainable design projects through October 1, 2012; and, initiates a host of other tax incentives that, when coupled with the provisions described above, will not only empower the solar panel and wind turbine industries and result in the creation of thousands of Green jobs, but all importantly, begin to provide certainty in the marketplace such that Green building and sustainable development will be competitive and will thrive.

If you have questions about any of these tax credits or if you would like our assistance with Green building and sustainable development, generally, please feel free to contact Stuart Kaplow.