The Energy Tax Aspects of New York City's 10,000 Building Heating Oil Conversions

By some estimates, approximately 10,000 New York City buildings will undergo a mandatory retrofit from high-emission No. 6 oil heating systems to an alternative fuel based heating system over the next 4 to 5 years. Because of the abundance of low cost natural gas, many of these building owners are selecting energy-efficient natural gas systems. This mandatory change is occurring at a time when buildings 50,000 square feet or greater are subject to New York City’s new mandatory energy reporting benchmarking law.

Many of the same buildings subject to the heating oil change also have federally banned or other energy-inefficient lighting. A large number of building owners are bundling the lighting and heating changes together and taking advantage of utility rebates, financing and tax incentives to optimize their overall economic return. This article discusses the energy tax opportunities, new heating law requirements, benchmarking process, lighting opportunity and how to optimize the integrated results.

The EPAct Section 179D Tax Opportunities

Pursuant to Energy Policy Act (EPAct) Section 179D, New York City building owners making qualifying energy-reducing investments in their new or existing locations can obtain immediate tax deductions of up to $1.80 per square foot.

If the building project doesn't qualify for the maximum EPAct Section 179D $1.80 per square foot immediate tax deduction, there are tax deductions of up to $0.60 per square foot for each of the three major building subsystems: lighting, HVAC (heating, ventilating, and air conditioning), and the building envelope. The building envelope is every item on the building’s exterior perimeter that touches the outside world including roof, walls, insulation, doors, windows and foundation.

Heating Law Requirements

Building owners in New York City will have to phase their most-polluting grades of heating regulation and replace their buildings’ heating system with a cleaner fuel source by 2015. Further, any newly installed boilers will have to burn an even less polluting grade of oil, known as No. 2 oil, or natural gas. The law is part of Mayor Bloomberg’s aggressive environmental policy known as PlaNYC.

Boilers that are not replaced by 2030 will need to be modified to meet the new regulations. Since building owners across the city will already be required to make a minimum level of investment in their heating systems, they should consider making further investments that will enable them to qualify for federal EPAct tax deductions.

NYC's Benchmarking Requirements

With the new local benchmarking law in effect, all buildings in NYC with an area over 50,000 square feet are obligated to submit an annual energy benchmark rating. Energy benchmarking requires data submissions reporting total energy and water use for a building for the previous year using US Environmental Protection Agency’s web-based Portfolio Manager. The NYC law includes all buildings over 50,000 gross square feet and includes two or more buildings on the same lot that total 100,000 square feet or more.

This new benchmarking law requires New York City building owners or operators to submit their energy data and have it compared to similar buildings within the City. We believe that buildings performing below the 50 percentile level for building energy and water use (performing lower than half of the comparable buildings) will be avoided by tenants.

Federal Lighting Bans

New York City buildings are impacted by three federal lighting bans related to:

1. Metal Halides

2. T-12 Fluorescent

3. Incandescent lighting

As of January 1, 2009, there is a national manufacture ban on most probe start metal halides. As of July 1, 2010, T-12 florescent lights were similarly banned and limited to ten per pack for distribution.

Starting in 2012 manufactures are banned from manufacturing and importing the traditional 100-watt light bulbs. Bulbs will have to be more energy efficient using no more than 72 watts, even including halogen incandescent, compact fluorescent (CFL) and light-emitting diode(LED) light bulbs. This bulb change is part of the federal Energy Independence and Security Act signed in 2007. Beginning in 2012 new bulbs must use 25 to 30 percent less energy nationwide starting with the 100-watt light bulb. Other incandescent bulbs such as 75, 60 and 40 watt bulbs will be phased out by 2014.

Effects on the New York City Market

The three major building categories impacted by the oil change requirements are 1) apartment buildings; 2) manufacturing (including assembly facilities and workshops); and 3) warehouses.

Apartment Buildings

Many apartment buildings have incandescent lighting inside the resident apartments that needs to be upgraded, and often have T-12 lighting in the support spaces that needs to be retrofitted. All apartments with central HVAC systems get special privileges under the EPAct tax provisions since the ASHRAE reference for determining tax savings is an apartment building with individual room units, which by definition is less efficient . Simply stated, apartment buildings that install central cooling systems typically qualify for EPAct tax savings.

Manufacturing and Warehouse Spaces

Non-conditioned, meaning non air-conditioned, manufacturing and warehouse spaces typically qualify for very high levels of EPAct tax savings ranging from $1.20 to $1.80 per square ft once energy efficient lighting is installed along with an energy efficient natural gas heater . For EPAct tax purposes manufacturing is broadly defined to include assembly, workshop, furniture repair, etc.

Combining Financial Incentives

In addition to energy savings and tax savings, the two other economic incentives available for these heating and lighting upgrades are financing and utility rebates. All of the incentives often produce additive benefits when utilized with a combined measure, meaning upgrading more than one energy savings measure item at once. A large amount of financing is available for these projects from a variety of sources, including financial institutions, vendor financing from equipment sellers and on-bill financing from energy sellers.

Utility rebates are available from NYSERDA, Con Ed and National Grid for both lighting and HVAC depending on the nature of the energy savings equipment and the location of the project.


New York City buildings subject to the heating oil conversion requirements must retrofit their buildings. Those building owners who concurrently address other regulatory changes by taking advantage of other energy savings building opportunities and utilizing financing, rebates and energy tax savings may find that what first appeared been a burden is a major business opportunity.


Charles Goulding, Jacob Goldman, and Joseph Most, “Complete Warehouse Tax-Enhanced Energy-Efficient Design.” Corporate Business Taxation Monthly (August 2010).

Charles Goulding, Jacob Goldman, and Raymond Kumar, ”Large EPAct Energy Tax Deduction Opportunities for Commercial Heaters,” Corporate Business Taxation Monthly (January 2010).

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