[Congressional Record Volume 160, Number 52 (Tuesday, April 1, 2014)]
[Senate]
[Pages S1925-S1934]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. CARDIN (for himself, Mrs. Feinstein, and Mr. Schatz):
  S. 2189. A bill to amend the Internal Revenue Code of 1986 to improve 
and extend the deduction for new and existing energy-efficient 
commercial buildings, and for other purposes; to the Committee on 
Finance.
  Mr. CARDIN. Mr. President, today I rise with my colleagues Senator 
Feinstein and Senator Schatz to introduce the Energy Efficiency Tax 
Incentives Act.
  Encouraging energy efficiency improvements is a smart and cost-
effective way to reduce pollution, increase the competitiveness of our 
employers, and to create jobs in both our construction and 
manufacturing sectors.
  As I have discussed previously on the floor of the Senate, our energy 
problem in this country can be primarily attributed to a waste problem. 
Recently, the Department of Energy calculated that we waste 57 percent 
of all energy produced.
  Our goal in introducing this bill is to prevent that waste by 
providing focused incentives that encourage significant improvements in 
energy efficiency and truly innovative energy efficiency technologies.
  While my colleagues will explain how the bill does this for our homes 
and the industrial sector, I would like to focus on how our bill 
improves energy efficiency outcomes for commercial and multifamily 
buildings.
  About 40 percent of energy consumption in the United States comes 
from our buildings, and up to 80 percent of the buildings standing 
today will still be here in 2050. Encouraging efficiency in new 
construction, and making these existing buildings more efficient, would 
generate billions of dollars in energy savings, spur job creation, and 
reduce carbon emissions.
  Until January 1, 2014, Section 179D of the Internal Revenue Code 
provided a tax deduction that allowed for cost recovery regarding 
energy efficient energy efficiency improvements to a building's 
lighting, HVAC, and envelope.
  Typically, the cost of energy consumption is part of a business's 
expenses and thus immediately deductible. Section 179D was an important 
provision because it aligned the Internal Revenue Code to similarly 
incentivize energy savings through efficiency improvements. In terms of 
meeting our energy demands, some of the cheapest and cleanest energy we 
have is the energy we don't use because of these improvements.
  Unfortunately, the 179D deduction expired at the end of 2013. As we 
move forward with tax extenders, it is critical that this provision be 
restored.
  Our bill restores the 179D deduction by extending it through 2016. In 
addition, our bill makes commonsense reforms to that section.
  We update the energy efficiency standards that must be met to qualify 
for the 179D deduction, including by providing automatic standard 
updates for the years the deduction is available. We want to be sure 
that this incentive is going to technologies that meet truly efficient 
standards.
  We also make the deduction more accessible to all real estate owners 
and those involved in implementing energy efficiency improvements, 
including through updated partial deduction standards and allocation 
provisions.
  Finally, the bill recognizes that, in the same way we encourage new 
construction to meet these standards, we should encourage energy 
efficiency retrofits.
  Our current tax policies do not yet provide an effective incentive 
for retrofitting our existing building stock. For example, the Empire 
State Building retrofit project, which will reduce that building's 
energy consumption by 40 percent, did not qualify for a section 179D 
deduction under its current structure.
  Our bill would provide a deduction for retrofits of existing 
commercial and multifamily buildings to further encourage retrofit 
projects. Like section 179D, the deduction would be performance-based 
to encourage ambitious improvements and make the credit more accessible 
to building owners.
  Before turning to my colleagues, I would like to reiterate that 
America's energy and economic future requires a focus on these energy 
incentives. Initiatives like our bill are needed not only to generate 
jobs, and savings for businesses and taxpayers, but also to improve our 
environment and make our nation more energy secure.
  Mr. CARDIN. Mr. President, I ask unanimous consent that the text of 
the bill be printed in the Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                S. 2189

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Energy 
     Efficiency Tax Incentives Act''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--The table of contents of this Act 
     is as follows:

Sec. 1. Short title; amendment of 1986 Code; table of contents.

               TITLE I--COMMERCIAL BUILDING MODERNIZATION

Sec. 101. Extension and modification of deduction for energy-efficient 
              commercial buildings.
Sec. 102. Deduction for retrofits of existing commercial and 
              multifamily buildings.

                   TITLE II--HOME ENERGY IMPROVEMENTS

Sec. 201. Performance based home energy improvements.

[[Page S1926]]

           TITLE III--INDUSTRIAL ENERGY AND WATER EFFICIENCY

Sec. 301. Modifications in credit for combined heat and power system 
              property.
Sec. 302. Investment tax credit for biomass heating property.
Sec. 303. Investment tax credit for waste heat to power property.
Sec. 304. Motor energy efficiency improvement tax credit.
Sec. 305. Credit for replacement of CFC refrigerant chiller.
Sec. 306. Qualifying efficient industrial process water use project 
              credit.

               TITLE I--COMMERCIAL BUILDING MODERNIZATION

     SEC. 101. EXTENSION AND MODIFICATION OF DEDUCTION FOR ENERGY-
                   EFFICIENT COMMERCIAL BUILDINGS.

       (a) Extension.--
       (1) Through 2016.--Section 179D(h) is amended by striking 
     ``December 31, 2013'' and inserting ``December 31, 2016''.
       (2) Inclusion of multifamily buildings.--
       (A) In general.--Subparagraph (B) of section 179D(c)(1) is 
     amended by striking ``building'' and inserting ``commercial 
     building or multifamily building''.
       (B) Definitions.--Subsection (c) of section 179D is amended 
     by adding at the end the following new paragraphs:
       ``(3) Commercial building.--The term `commercial building' 
     means a building with a primary use or purpose other than as 
     residential housing.
       ``(4) Multifamily building.--The term `multifamily 
     building' means a structure of 5 or more dwelling units with 
     a primary use as residential housing, and includes such 
     buildings owned and operated as a condominium, cooperative, 
     or other common interest community.''.
       (b) Increase in Maximum Amount of Deduction.--
       (1) In general.--Subparagraph (A) of section 179D(b)(1) is 
     amended by striking ``$1.80'' and inserting ``$3.00''.
       (2) Partial allowance.--Paragraph (1) of section 179D(d) is 
     amended to read as follows:
       ``(1) Partial allowance.--
       ``(A) In general.--Except as provided in subsection (f), 
     if--
       ``(i) the requirement of subsection (c)(1)(D) is not met, 
     but
       ``(ii) there is a certification in accordance with 
     paragraph (6) that--

       ``(I) any system referred to in subsection (c)(1)(C) 
     satisfies the energy-savings targets established by the 
     Secretary under subparagraph (B) with respect to such system, 
     or
       ``(II) the systems referred to in subsection (c)(1)(C)(ii) 
     and subsection (c)(1)(C)(iii) together satisfy the energy-
     savings targets established by the Secretary under 
     subparagraph (B) with respect to such systems,

     then the requirement of subsection (c)(1)(D) shall be treated 
     as met with respect to such system or systems, and the 
     deduction under subsection (a) shall be allowed with respect 
     to energy-efficient commercial building property installed as 
     part of such system and as part of a plan to meet such 
     targets, except that subsection (b) shall be applied to such 
     property described in clause (ii)(I) by substituting `$1.00' 
     for `$3.00' and to such property described in clause (ii)(II) 
     by substituting `$2.20' for `$3.00'.
       ``(B) Regulations.--
       ``(i) In general.--The Secretary, after consultation with 
     the Secretary of Energy, shall promulgate regulations 
     establishing a target for each system described in subsection 
     (c)(1)(C) which, if such targets were met for all such 
     systems, the property would meet the requirements of 
     subsection (c)(1)(D).
       ``(ii) Safe harbor for combined systems.--The Secretary, 
     after consultation with the Secretary of Energy, and not 
     later than 6 months after the date of the enactment of the 
     Energy Efficiency Tax Incentives Act, shall promulgate 
     regulations regarding combined envelope and mechanical system 
     performance that detail appropriate components, efficiency 
     levels, or other relevant information for the systems 
     referred to in subsection (c)(1)(C)(ii) and subsection 
     (c)(1)(C)(iii) together to be deemed to have achieved two-
     thirds of the requirements of subsection (c)(1)(D).''.
       (c) Denial of Double Benefit Rules.--
       (1) In general.--Section 179D is amended by redesignating 
     subsection (h) as subsection (i) and by inserting after 
     subsection (g) the following new subsection:
       ``(h) Tax Incentives Not Available.--Energy-efficient 
     measures for which a deduction is allowed under this section 
     shall not be eligible for a deduction under section 179F.''.
       (2) Low-income housing exception to basis reduction.--
     Subsection (e) of section 179D is amended by inserting 
     ``(other than property placed in service in a qualified low-
     income building (within the meaning of section 42))'' after 
     ``building property''.
       (d) Allocation of Deduction.--Paragraph (4) of section 
     179D(d) is amended to read as follows:
       ``(4) Allocation of deduction.--
       ``(A) In general.--Not later than 180 days after the date 
     of the enactment of this subsection, the Secretary, in 
     consultation with the Secretary of Energy, shall promulgate a 
     regulation to allow the owner of a commercial or multifamily 
     building, including a government, tribal, or non-profit 
     owner, to allocate any deduction allowed under this section, 
     or a portion thereof, to the person primarily responsible for 
     designing the property in lieu of the owner or to a 
     commercial tenant that leases or otherwise occupies space in 
     such building pursuant to a written agreement. Such person 
     shall be treated as the taxpayer for purposes of this 
     section.
       ``(B) Form of allocation.--An allocation made under this 
     paragraph shall be in writing and in a form that meets the 
     form of allocation requirements in Notice 2008-40 of the 
     Internal Revenue Service.
       ``(C) Provision of allocation.--Not later than 30 days 
     after receipt of a written request from a person eligible to 
     receive an allocation under this paragraph, the owner of a 
     building that makes an allocation under this paragraph shall 
     provide the form of allocation (as described in subparagraph 
     (B)) to such person.
       ``(D) Allocation from public owner of building.--In the 
     case of a commercial building or multifamily building that is 
     owned by a Federal, State, or local government or a 
     subdivision thereof, Notice 2006-52 of the Internal Revenue 
     Service, as amplified by Notice 2008-40, shall apply to any 
     allocation.''.
       (e) Treatment of Basis in Context of Allocation.--
     Subsection (e) of section 179D, as amended by subsection 
     (c)(2), is amended by inserting ``or so allocated'' after 
     ``so allowed''.
       (f) Earnings and Profits Conformity for Real Estate 
     Investment Trusts.--Subparagraph (B) of section 312(k)(3) is 
     amended--
       (1) by striking ``.--For purposes of'' and inserting ``.--
       ``(i) In general.--Except as provided in clause (ii), for 
     purposes of'', and
       (2) by adding at the end the following new clause:
       ``(ii) Earnings and profits conformity for real estate 
     investment trusts.--

       ``(I) In general.--For purposes of computing the earnings 
     and profits of a real estate investment trust (other than a 
     captive real estate investment trust), the entire amount 
     deductible under section 179D shall be allowed as deductions 
     in the taxable years for which such amounts are claimed under 
     such section.
       ``(II) Captive real estate investment trust.--The term 
     `captive real estate investment trust' means a real estate 
     investment trust the shares or beneficial interests of which 
     are not regularly traded on an established securities market 
     and more than 50 percent of the voting power or value of the 
     beneficial interests or shares of which are owned or 
     controlled, directly or indirectly, or constructively, by a 
     single entity that is treated as an association taxable as a 
     corporation under this title and is not exempt from taxation 
     pursuant to the provisions of section 501(a).
       ``(III) Rules of application.--For purposes of this clause, 
     the constructive ownership rules of section 318(a), as 
     modified by section 856(d)(5), shall apply in determining the 
     ownership of stock, assets, or net profits of any person, and 
     the following entities are not considered an association 
     taxable as a corporation:

       ``(aa) Any real estate investment trust other than a 
     captive real estate investment trust.
       ``(bb) Any qualified real estate investment trust 
     subsidiary under section 856, other than a qualified REIT 
     subsidiary of a captive real estate investment trust.
       ``(cc) Any Listed Australian Property Trust (meaning an 
     Australian unit trust registered as a `Managed Investment 
     Scheme' under the Australian Corporations Act in which the 
     principal class of units is listed on a recognized stock 
     exchange in Australia and is regularly traded on an 
     established securities market), or an entity organized as a 
     trust, provided that a Listed Australian Property Trust owns 
     or controls, directly or indirectly, 75 percent or more of 
     the voting power or value of the beneficial interests or 
     shares of such trust.
       ``(dd) Any corporation, trust, association, or partnership 
     organized outside the laws of the United States and which 
     satisfies the criteria described in subclause (IV).

       ``(IV) Criteria.--The criteria described in this subclause 
     are as follows:

       ``(aa) At least 75 percent of the entity's total asset 
     value at the close of its taxable year is represented by real 
     estate assets (as defined in section 856(c)(5)(B)), cash and 
     cash equivalents, and United States Government securities.
       ``(bb) The entity is not subject to tax on amounts 
     distributed to its beneficial owners, or is exempt from 
     entity-level taxation.
       ``(cc) The entity distributes at least 85 percent of its 
     taxable income (as computed in the jurisdiction in which it 
     is organized) to the holders of its shares or certificates of 
     beneficial interest on an annual basis.
       ``(dd) Not more than 10 percent of the voting power or 
     value in such entity is held directly or indirectly or 
     constructively by a single entity or individual, or the 
     shares or beneficial interests of such entity are regularly 
     traded on an established securities market.
       ``(ee) The entity is organized in a country which has a tax 
     treaty with the United States.''.
       (g) Rules for Lighting Systems.--Subsection (f) of section 
     179D is amended to read as follows:
       ``(f) Rules for Lighting Systems.--
       ``(1) In general.--With respect to property that is part of 
     a lighting system, the deduction allowed under subsection (a) 
     shall be equal to--
       ``(A) for a lighting system that includes installation of a 
     lighting control described in paragraph (2)(A), the 
     applicable amount determined under paragraph (3)(A),

[[Page S1927]]

       ``(B) for a lighting system that includes installation of a 
     lighting control described in paragraph (2)(B), the 
     applicable amount determined under paragraph (3)(B), or
       ``(C) for a lighting system that does not include 
     installation of any lighting controls described in 
     subparagraphs (A) or (B) of paragraph (2), the applicable 
     amount determined under paragraph (3)(C).
       ``(2) Energy saving controls.--
       ``(A) Lighting controls in certain spaces.--For purposes of 
     paragraph (1)(A), the lighting controls described in this 
     subparagraph are the following:
       ``(i) Occupancy sensors (as described in paragraph (4)(I)) 
     in spaces not greater than 800 square feet.
       ``(ii) Bi-level controls (as described in paragraph 
     (4)(A)).
       ``(iii) Continuous or step dimming controls (as described 
     in subparagraphs (B) and (K) of paragraph (4)).
       ``(iv) Daylight dimming where sufficient daylight is 
     available (as described in paragraph (4)(C)).
       ``(v) A multi-scene controller (as described in paragraph 
     (4)(H)).
       ``(vi) Time scheduling controls (as described in paragraph 
     (4)(L)), provided that such controls are not required by 
     Standard 90.1-2010.
       ``(vii) Such other lighting controls as the Secretary, in 
     consultation with the Secretary of Energy, determines 
     appropriate.
       ``(B) Other control types.--For purposes of paragraph 
     (1)(B), the lighting controls described in this subparagraph 
     are the following:
       ``(i) Occupancy sensors (as described in paragraph (4)(I)) 
     in spaces greater than 800 square feet.
       ``(ii) Demand responsive controls (as described in 
     paragraph (4)(D)).
       ``(iii) Lumen maintenance controls (as described in 
     paragraph (4)(F)) where solid state lighting is used.
       ``(iv) Such other lighting controls as the Secretary, in 
     consultation with the Secretary of Energy, determines 
     appropriate.
       ``(3) Applicable amount.--
       ``(A) Lighting controls in certain spaces.--For purposes of 
     paragraph (1)(A), the applicable amount shall be determined 
     in accordance with the following table:
``If the percentage of reduction in lighting power density is not less 
The amount of the deduction per square foot is:
  15 percent......................................................$0.30
  20 percent......................................................$0.44
  25 percent......................................................$0.58
  30 percent......................................................$0.72
  35 percent......................................................$0.86
  40 percent......................................................$1.00

       ``(B) Lighting controls in larger spaces and where solid 
     lighting is used.--For purposes of paragraph (1)(B), the 
     applicable amount shall be determined in accordance with the 
     following table:
``If the percentage of reduction in lighting power density is not less 
The amount of the deduction per square foot is:
  20 percent......................................................$0.30
  25 percent......................................................$0.44
  30 percent......................................................$0.58
  35 percent......................................................$0.72
  40 percent......................................................$0.86
  45 percent......................................................$1.00

       ``(C) No qualified lighting controls.--For purposes of 
     paragraph (1)(C), the applicable amount shall be determined 
     in accordance with the following table:

``If the percentage of reduction in lighting power density is not less 
The amount of the deduction per square foot is:
  25 percent......................................................$0.30
  30 percent......................................................$0.44
  35 percent......................................................$0.58
  40 percent......................................................$0.72
  45 percent......................................................$0.86
  50 percent......................................................$1.00

       ``(4) Definitions.--For purposes of this subsection:
       ``(A) Bi-level control.--
       ``(i) In general.--Subject to clause (ii), the term `bi-
     level control' means a lighting control strategy that 
     provides for 2 different levels of lighting.
       ``(ii) Full-off setting.--For purposes of clause (i), a bi-
     level control shall also provide for a full-off setting.
       ``(B) Continuous dimming.--The term `continuous dimming' 
     means a lighting control strategy that adjusts the light 
     output of a lighting system between minimum and maximum light 
     output in a manner that is not perceptible.
       ``(C) Daylight dimming; sufficient daylight.--
       ``(i) Daylight dimming.--The term `daylight dimming' means 
     any device that--

       ``(I) adjusts electric lighting power in response to the 
     amount of daylight that is present in an area, and
       ``(II) provides for separate control of the lamps for 
     general lighting in the daylight area by not less than 1 
     multi-level photocontrol, including continuous dimming 
     devices, that satisfies the following requirements:

       ``(aa) The light sensor for the multi-level photocontrol is 
     remote from where calibration adjustments are made.
       ``(bb) The calibration adjustments are readily accessible.
       ``(cc) The multi-level photocontrol reduces electric 
     lighting power in response to the amount of daylight with--
       ``(AA) not less than 1 control step that is between 50 
     percent and 70 percent of design lighting power, and
       ``(BB) not less than 1 control step that is not less than 
     35 percent of design lighting power.
       ``(ii) Sufficient daylight.--

       ``(I) In general.--The term `sufficient daylight' means--

       ``(aa) in the case of toplighted areas, when the total 
     daylight area under skylights plus the total daylight area 
     under rooftop monitors in an enclosed space is greater than 
     900 square feet (as defined in Standard 90.1-2010), and
       ``(bb) in the case of sidelighted areas, when the combined 
     primary sidelight area in an enclosed space is not less than 
     250 square feet (as defined in Standard 90.1-2010).

       ``(II) Exceptions.--Sufficient daylight shall be deemed to 
     not be available if--

       ``(aa) in the case of areas described in subclause 
     (I)(aa)--
       ``(AA) for daylighted areas under skylights, it is 
     documented that existing adjacent structures or natural 
     objects block direct beam sunlight for more than 1500 daytime 
     hours (after 8 a.m. and before 4 p.m., local time) per year,
       ``(BB) for daylighted areas, the skylight effective 
     aperture is less than 0.006, or
       ``(CC) for buildings in climate zone 8, as defined under 
     Standard 90.1-2010, the daylight areas total less than 1500 
     square feet in an enclosed space, and
       ``(bb) in the case of primary sidelighted areas described 
     in subclause (I)(bb)--
       ``(AA) the top of the existing adjacent structures are at 
     least twice as high above the windows as the distance from 
     the window, or
       ``(BB) the sidelighting effective aperture is less than 
     0.1.
       ``(iii) Daylight, sidelighting, and other related terms.--
     The terms `daylight area', `daylight area under skylights', 
     `daylight area under rooftop monitors', `daylighted area', 
     `enclosed space', `primary sidelighted areas', `sidelighting 
     effective aperture', and `skylight effective aperture' have 
     the same meaning given such terms under Standard 90.1-2010.
       ``(D) Demand responsive control.--
       ``(i) In general.--The term `demand responsive control' 
     means a control device that receives and automatically 
     responds to a demand response signal and--

       ``(I) in the case of space-conditioning systems, conducts a 
     centralized demand shed for non-critical zones during a 
     demand response period and that has the capability to, on a 
     signal from a centralized contract or software point within 
     an Energy Management Control System--

       ``(aa) remotely increase the operating cooling temperature 
     set points in such zones by not less than 4 degrees,
       ``(bb) remotely decrease the operating heating temperature 
     set points in such zones by not less than 4 degrees,
       ``(cc) remotely reset temperatures in such zones to 
     originating operating levels, and
       ``(dd) provide an adjustable rate of change for any 
     temperature adjustment and reset, and

       ``(II) in the case of lighting power, has the capability to 
     reduce lighting power by not less than 30 percent during a 
     demand response period.

       ``(ii) Demand response period.--The term `demand response 
     period' means a period in which short-term adjustments in 
     electricity usage are made by end-use customers from normal 
     electricity consumption patterns, including adjustments in 
     response to--

       ``(I) the price of electricity, and
       ``(II) participation in programs or services that are 
     designed to modify electricity usage in response to wholesale 
     market prices for electricity or when reliability of the 
     electrical system is in jeopardy.

       ``(iii) Demand response signal.--The term `demand response 
     signal' means a signal sent to an end-use customer by a local 
     utility, independent system operator, or designated 
     curtailment service provider or aggregator that--

       ``(I) indicates an adjustment in the price of electricity, 
     or
       ``(II) is a request to modify electricity consumption.

       ``(E) Lamp.--The term `lamp' means an artificial light 
     source that produces optical radiation (including ultraviolet 
     and infrared radiation).
       ``(F) Lumen maintenance control.--The term `lumen 
     maintenance control' means a lighting control strategy that 
     maintains constant light output by adjusting lamp power to 
     compensate for age and cleanliness of luminaires.
       ``(G) Luminaire.--The term `luminaire' means a complete 
     lighting unit for the production, control, and distribution 
     of light that consists of--
       ``(i) not less than 1 lamp, and
       ``(ii) any of the following items:

       ``(I) Optical control devices designed to distribute light.
       ``(II) Sockets or mountings for the positioning, 
     protection, and operation of the lamps.
       ``(III) Mechanical components for support or attachment.
       ``(IV) Electrical and electronic components for operation 
     and control of the lamps.

       ``(H) Multi-scene control.--The term `multi-scene control' 
     means a lighting control device or system that allows for--

[[Page S1928]]

       ``(i) not less than 2 predetermined lighting settings,
       ``(ii) a setting that turns off all luminaires in an area, 
     and
       ``(iii) a recall of the settings described in clauses (i) 
     and (ii) for any luminaires or groups of luminaires to adjust 
     to multiple activities within the area.
       ``(I) Occupancy sensor.--The term `occupancy sensor' means 
     a control device that--
       ``(i) detects the presence or absence of individuals within 
     an area and regulates lighting, equipment, or appliances 
     according to a required sequence of operation,
       ``(ii) shuts off lighting when an area is unoccupied,
       ``(iii) except in areas designated as emergency egress and 
     using less than 0.2 watts per square foot of floor area, 
     provides for manual shut-off of all luminaires regardless of 
     the status of the sensor and allows for--

       ``(I) independent control in each area enclosed by ceiling-
     height partitions,
       ``(II) controls that are readily accessible, and
       ``(III) operation by a manual switch that is located in the 
     same area as the lighting that is subject to the control 
     device.

       ``(J) Standard 90.1-2010.--The term `Standard 90.1-2010' 
     means Standard 90.1-2010 of the American Society of Heating, 
     Refrigerating, and Air Conditioning Engineers and the 
     Illuminating Engineering Society of North America.
       ``(K) Step dimming.--The term `step dimming' means a 
     lighting control strategy that adjusts the light output of a 
     lighting system by 1 or more predetermined amounts of greater 
     than 1 percent of full output in a manner that may be 
     perceptible.
       ``(L) Time scheduling control.--The term `time scheduling 
     control' means a control strategy that automatically controls 
     lighting, equipment, or systems based on a particular time of 
     day or other daily event (including sunrise and sunset).''.
       (h) Updated Standards.--
       (1) Initial update.--
       (A) In general.--Section 179D(c) is amended by striking 
     ``90.1-2001'' each place it appears and inserting ``90.1-
     2004''.
       (B) Conforming amendment.--Paragraph (2) of section 179D(c) 
     is amended by striking ``(as in effect on April 2, 2003)''.
       (2) Second update.--
       (A) In general.--Section 179D is amended by striking 
     ``90.1-2004'' each place it appears in subsections (c) and 
     (f) and inserting ``90.1-2007''.
       (B) Effective date.--The amendments made by subparagraph 
     (A) shall apply to property placed in service after December 
     31, 2014.
       (i) Treatment of Lighting Systems.--Section 179D(c)(1) is 
     amended by striking ``interior'' each place it appears.
       (j) Reporting Program.--Section 179D, as amended by 
     subsection (c)(1), is amended by redesignating subsection (i) 
     as subsection (j) and by inserting after subsection (h) the 
     following new subsection:
       ``(i) Reporting Program.--For purposes of the report 
     required under section 179F(l), the Secretary, in 
     consultation with the Secretary of Energy, shall--
       ``(1) develop a program to collect a statistically valid 
     sample of energy consumption data from taxpayers that 
     received full deductions under this section, regardless of 
     whether such taxpayers allocated all or a portion of such 
     deduction, and
       ``(2) include such data in the report, with such redactions 
     as deemed necessary to protect the personally identifiable 
     information of such taxpayers.''.
       (k) Special Rule for Partnerships and S Corporations.--
     Section 179D, as amended by subsection (j), is amended by 
     redesignating subsection (j) as subsection (k) and by 
     inserting after subsection (i) the following new subsection:
       ``(j) Special Rule for Partnerships and S Corporations.--In 
     the case of a partnership or S corporation, this section 
     shall be applied at the partner or shareholder level, subject 
     to such reporting requirements as are determined appropriate 
     by the Secretary.''.
       (l) Effective Date.--Except as otherwise provided, the 
     amendments made by this section shall apply to property 
     placed in service in taxable years beginning after the date 
     of the enactment of this Act.

     SEC. 102. DEDUCTION FOR RETROFITS OF EXISTING COMMERCIAL AND 
                   MULTIFAMILY BUILDINGS.

       (a) In General.--Part VI of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 is amended by inserting 
     after section 179E the following new section:

     ``SEC. 179F. DEDUCTION FOR RETROFITS OF EXISTING COMMERCIAL 
                   AND MULTIFAMILY BUILDINGS.

       ``(a) Allowance of Deduction.--
       ``(1) In general.--With respect to each certified retrofit 
     plan, there shall be allowed as a deduction an amount equal 
     to the lesser of--
       ``(A) the sum of--
       ``(i) the design deduction, and
       ``(ii) the realized deduction, or
       ``(B) the total cost to develop and implement such 
     certified retrofit plan.
       ``(2) Exception.--For purposes of the amount described in 
     paragraph (1)(B), if such amount is taken as a design 
     deduction, no realized deduction shall be allowed.
       ``(b) Deduction Amounts.--For purposes of this section--
       ``(1) Design deduction.--A design deduction shall be--
       ``(A) based on projected source energy savings as 
     calculated in accordance with subsection (c)(3)(B),
       ``(B) correlated to the percent of source energy savings 
     set forth in the general scale in paragraph (3)(A) that a 
     certified retrofit plan is projected to achieve when energy-
     efficient measures are placed in service, and
       ``(C) equal to 60 percent of the amount allowed under the 
     general scale.
       ``(2) Realized deduction.--
       ``(A) In general.--A realized deduction shall be--
       ``(i) based on realized source energy savings as calculated 
     in accordance with subsection (c)(3)(C),
       ``(ii) correlated to the percent of source energy savings 
     set forth in the general scale in paragraph (3)(A) as 
     realized by a certified retrofit plan, and
       ``(iii) equal to 40 percent of the amount allowed under the 
     general scale.
       ``(B) Adjustment of source energy savings.--The percent of 
     source energy savings for purposes of any realized deduction 
     may vary from such savings projected when energy-efficient 
     measures were placed in service for purposes of a design 
     deduction under paragraph (1).
       ``(C) No recapture of design deduction.--Notwithstanding 
     the regulations prescribed under subsection (f), no recapture 
     of a design deduction shall be required where the owner of 
     the commercial or multifamily building--
       ``(i) claims or allocates a design deduction when energy-
     efficient measures are placed into service pursuant to the 
     terms and conditions of a certified retrofit plan, and
       ``(ii) is not eligible for or does not subsequently claim 
     or allocate a realized deduction.
       ``(3) General scale.--
       ``(A) In general.--The scale for deductions allowed under 
     this section shall be--
       ``(i) $1.00 per square foot of retrofit floor area for 20 
     to 24 percent source energy savings,
       ``(ii) $1.50 per square foot of retrofit floor area for 25 
     to 29 percent source energy savings,
       ``(iii) $2.00 per square foot of retrofit floor area for 30 
     to 34 percent source energy savings,
       ``(iv) $2.50 per square foot of retrofit floor area for 35 
     to 39 percent source energy savings,
       ``(v) $3.00 per square foot of retrofit floor area for 40 
     to 44 percent source energy savings,
       ``(vi) $3.50 per square foot of retrofit floor area for 45 
     to 49 percent source energy savings, and
       ``(vii) $4.00 per square foot of retrofit floor area for 50 
     percent or more source energy savings.
       ``(B) Historic buildings.--
       ``(i) In general.--With respect to energy-efficient 
     measures placed in service as part of a certified retrofit 
     plan in a commercial building or multifamily building on or 
     eligible for the National Register of Historic Places, the 
     respective dollar amounts set forth in the general scale 
     under subparagraph (A) shall--

       ``(I) each be increased by 20 percent, for the purposes of 
     calculating any applicable design deduction and realized 
     deduction, and
       ``(II) not exceed the total cost to develop and implement 
     such certified retrofit plan.

       ``(ii) Exception.--If the amount described in clause 
     (i)(II) is taken as a design deduction, then no realized 
     deduction shall be allowed.
       ``(c) Calculation of Energy Savings.--
       ``(1) In general.--For purposes of the design deduction and 
     the realized deduction, source energy savings shall be 
     calculated with reference to a baseline of the annual source 
     energy consumption of the commercial or multifamily building 
     before energy-efficient measures were placed in service.
       ``(2) Baseline benchmark.--The baseline under paragraph (1) 
     shall be determined using a building energy performance 
     benchmarking tool designated by the Administrator of the 
     Environmental Protection Agency, and based upon 1 year of 
     source energy consumption data prior to the date upon which 
     the energy-efficient measures are placed in service.
       ``(3) Design and realized source energy savings.--
       ``(A) In general.--In certifying a retrofit plan as a 
     certified retrofit plan, a licensed engineer or architect 
     shall calculate source energy savings by utilizing the 
     baseline benchmark defined in paragraph (2) and determining 
     percent improvements from such baseline.
       ``(B) Design deduction.--For purposes of claiming a design 
     deduction, the regulations issued under subsection (f)(1) 
     shall prescribe the standards and process for a licensed 
     engineer or architect to calculate and certify source energy 
     savings projected from the design of a certified retrofit 
     plan as of the date energy-efficient measures are placed in 
     service.
       ``(C) Realized deduction.--For purposes of claiming a 
     realized deduction, a licensed engineer or architect shall 
     calculate and certify source energy savings realized by a 
     certified retrofit plan 2 years after a design deduction is 
     allowed by utilizing energy consumption data after energy-
     efficient measures are placed in service, and adjusting for 
     climate, building occupancy hours, density, or other factors 
     deemed appropriate in the benchmarking tool designated under 
     paragraph (2).
       ``(d) Certified Retrofit Plan and Other Definitions.--For 
     purposes of this section--

[[Page S1929]]

       ``(1) Certified retrofit plan.--The term `certified 
     retrofit plan' means a plan that--
       ``(A) is designed to reduce the annual source energy costs 
     of a commercial building, or a multifamily building, through 
     the installation of energy-efficient measures,
       ``(B) is certified under penalty of perjury by a licensed 
     engineer or architect, who is not a direct employee of the 
     owner of the commercial building or multifamily building that 
     is the subject of the plan, and is licensed in the State in 
     which such building is located,
       ``(C) describes the square footage of retrofit floor area 
     covered by such a plan,
       ``(D) specifies that it is designed to achieve a final 
     source energy usage intensity after energy-efficient measures 
     are placed in service in a commercial building or a 
     multifamily building that does not exceed on a square foot 
     basis the average level of energy usage intensity of other 
     similar buildings, as described in paragraph (2),
       ``(E) requires that after the energy-efficient measures are 
     placed in service, the commercial building or multifamily 
     building meets the applicable State and local building code 
     requirements for the area in which such building is located,
       ``(F) satisfies the regulations prescribed under subsection 
     (f), and
       ``(G) is submitted to the Secretary of Energy after energy-
     efficient measures are placed in service, for the purpose of 
     informing the report to Congress required by subsection (l).
       ``(2) Average level of energy usage intensity.--
       ``(A) In general.--The maximum average level of energy 
     usage intensity under paragraph (1)(D) shall not exceed 
     300,000 British thermal units per square foot.
       ``(B) Regulations.--
       ``(i) In general.--The Secretary, in consultation with the 
     Administrator of the Environmental Protection Agency, shall 
     develop distinct standards for categories and subcategories 
     of buildings with respect to maximum average level of energy 
     usage intensity based on the best available information used 
     by the ENERGY STAR program.
       ``(ii) Review.--The standards developed pursuant to clause 
     (i) shall be reviewed and updated by the Secretary, in 
     consultation with the Administrator of the Environmental 
     Protection Agency, not later than every 3 years.
       ``(3) Commercial building.--
       ``(A) In general.--The term `commercial building' means a 
     building located in the United States--
       ``(i) that is in existence and occupied on the date of the 
     enactment of this section,
       ``(ii) for which a certificate of occupancy has been issued 
     at least 10 years before energy efficiency measures are 
     placed in service, and
       ``(iii) with a primary use or purpose other than as 
     residential housing.
       ``(B) Shopping centers.--In the case of a retail shopping 
     center, the term `commercial building' shall include an area 
     within such building that is--
       ``(i) 50,000 square feet or larger that is covered by a 
     separate utility grade meter to record energy consumption in 
     such area, and
       ``(ii) under the day-to-day management and operation of--

       ``(I) the owner of such building as common space areas, or
       ``(II) a retail tenant, lessee, or other occupant.

       ``(4) Energy-efficient measures.--The term `energy-
     efficient measures' means a measure, or combination of 
     measures, placed in service through a certified retrofit 
     plan--
       ``(A) on or in a commercial building or multifamily 
     building,
       ``(B) as part of--
       ``(i) the lighting systems,
       ``(ii) the heating, cooling, ventilation, refrigeration, or 
     hot water systems,
       ``(iii) building transportation systems, such as elevators 
     and escalators,
       ``(iv) the building envelope, which may include an energy-
     efficient cool roof,
       ``(v) a continuous commissioning contract under the 
     supervision of a licensed engineer or architect, or
       ``(vi) building operations or monitoring systems, including 
     utility-grade meters and submeters, and
       ``(C) including equipment, materials, and systems within 
     subparagraph (B) with respect to which depreciation (or 
     amortization in lieu of depreciation) is allowed.
       ``(5) Energy savings.--The term `energy savings' means 
     source energy usage intensity reduced on a per square foot 
     basis through design and implementation of a certified 
     retrofit plan.
       ``(6) Multifamily building.--The term `multifamily 
     building'--
       ``(A) means--
       ``(i) a structure of 5 or more dwelling units located in 
     the United States--

       ``(I) that is in existence and occupied on the date of the 
     enactment of this section,
       ``(II) for which a certificate of occupancy has been issued 
     at least 10 years before energy efficiency measures are 
     placed in service, and
       ``(III) with a primary use as residential housing, and

       ``(B) includes such buildings owned and operated as a 
     condominium, cooperative, or other common interest community.
       ``(7) Source energy.--The term `source energy' means the 
     total amount of raw fuel that is required to operate a 
     commercial building or multifamily building, and accounts for 
     losses that are incurred in the generation, storage, 
     transport, and delivery of fuel to such a building.
       ``(e) Timing of Claiming Deductions.--Deductions allowed 
     under this section may be claimed as follows:
       ``(1) Design deduction.--In the case of a design deduction, 
     in the taxable year that energy efficiency measures are 
     placed in service.
       ``(2) Realized deduction.--In the case of a realized 
     deduction, in the second taxable year following the taxable 
     year described in paragraph (1).
       ``(f) Regulations.--
       ``(1) In general.--Not later than 180 days after the date 
     of the enactment of this section, and after notice and 
     opportunity for public comment, the Secretary, in 
     consultation with the Secretary of Energy and the 
     Administrator of the Environmental Protection Agency, shall 
     prescribe regulations--
       ``(A) for the manner and method for a licensed engineer or 
     architect to certify retrofit plans, model projected energy 
     savings, and calculate realized energy savings, and
       ``(B) notwithstanding subsection (b)(2)(C), to provide, as 
     appropriate, for a recapture of the deductions allowed under 
     this section if a retrofit plan is not fully implemented, or 
     a retrofit plan and energy savings are not certified or 
     verified in accordance with regulations prescribed under this 
     subsection.
       ``(2) Reliance on established protocols, etc.--To the 
     maximum extent practicable and available, such regulations 
     shall rely upon established protocols and documents used in 
     the ENERGY STAR program, and industry best practices and 
     existing guidelines, such as the Building Energy Modeling 
     Guidelines of the Commercial Energy Services Network 
     (COMNET).
       ``(3) Allowance of deductions pending issuance of 
     regulations.--Pending issuance of the regulations under 
     paragraph (1), the owner of a commercial building or a 
     multifamily building shall be allowed to claim or allocate a 
     deduction allowed under this section.
       ``(g) Notice to Owner.--Each certification of a retrofit 
     plan and calculation of energy savings required under this 
     section shall include an explanation to the owner of a 
     commercial building or a multifamily building regarding the 
     energy-efficient measures placed in service and their 
     projected and realized annual energy costs.
       ``(h) Allocation of Deduction.--
       ``(1) In general.--Not later than 180 days after the date 
     of the enactment of this section, the Secretary, in 
     consultation with the Secretary of Energy, shall promulgate a 
     regulation to allow the owner of a commercial building or a 
     multifamily building, including a government, tribal, or non-
     profit owner, to allocate any deduction allowed under this 
     section, or a portion thereof, to the person primarily 
     responsible for funding, financing, designing, leasing, 
     operating, or placing in service energy-efficient measures. 
     Such person shall be treated as the taxpayer for purposes of 
     this section and shall include a building tenant, financier, 
     architect, professional engineer, licensed contractor, energy 
     services company, or other building professional.
       ``(2) Form of allocation.--An allocation made under this 
     paragraph shall be in writing and in a form that meets the 
     form of allocation requirements in Notice 2008-40 of the 
     Internal Revenue Service.
       ``(3) Provision of allocation.--Not later than 30 days 
     after receipt of a written request from a person eligible to 
     receive an allocation under this paragraph, the owner of a 
     building that makes an allocation under this paragraph shall 
     provide the form of allocation (as described in paragraph 
     (2)) to such person.
       ``(4) Allocation from public owner of building.--In the 
     case of a commercial building or a multifamily building that 
     is owned by a Federal, State, or local government or a 
     subdivision thereof, Notice 2006-52 of the Internal Revenue 
     Service, as amplified by Notice 2008-40, shall apply to any 
     allocation.
       ``(i) Basis Reduction.--For purposes of this subtitle, if a 
     deduction is allowed under this section with respect to any 
     energy-efficient measures placed in service under a certified 
     retrofit plan other than in a qualified low-income building 
     (within the meaning of section 42), the basis of such 
     measures shall be reduced by the amount of the deduction so 
     allowed or so allocated.
       ``(j) Special Rule for Partnerships and S Corporations.--In 
     the case of a partnership or S corporation, this section 
     shall be applied at the partner or shareholder level, subject 
     to such reporting requirements as are determined appropriate 
     by the Secretary.
       ``(k) Tax Incentives Not Available.--
       ``(1) Energy efficient commercial buildings deduction.--
     Energy-efficient measures for which a deduction is allowed 
     under this section shall not be eligible for a deduction 
     under section 179D.
       ``(2) New energy efficient home credit.--No deduction shall 
     be allowed under this section with respect to any building or 
     dwelling unit with respect to which a credit under section 
     45L was allowed.
       ``(l) Report to Congress.--
       ``(1) In general.--Biennially, beginning with the first 
     year after the enactment of this section, the Secretary, in 
     conjunction with the Secretary of Energy, shall submit a 
     report to Congress that--
       ``(A) explains the energy saved, the energy-efficient 
     measures implemented, the realization of energy savings 
     projected, and records the amounts and types of deductions 
     allowed under this section,

[[Page S1930]]

       ``(B) explains the energy saved, the energy efficient 
     measures implemented, and records the amount of deductions 
     allowed under section 179D, based on the data collected 
     pursuant to subsection (i) of such section,
       ``(C) determines the number of jobs created as a result of 
     the deduction allowed under this section,
       ``(D) determines how the use of any deduction allowed under 
     this section may be improved, based on the information 
     provided to the Secretary of Energy,
       ``(E) provides aggregated data with respect to the 
     information described in subparagraphs (A) through (D), and
       ``(F) provides statutory recommendations to Congress that 
     would reduce energy consumption in new and existing 
     commercial buildings located in the United States, including 
     recommendations on providing energy-efficient tax incentives 
     for subsections of buildings that operate with specific 
     utility-grade metering.
       ``(2) Protection of taxpayer information.--The Secretary 
     and the Secretary of Energy shall share information on 
     deductions allowed under this section and related reports 
     submitted, as requested by each agency to fulfill its 
     obligations under this section, with such redactions as 
     deemed necessary to protect the personally identifiable 
     financial information of a taxpayer.
       ``(3) Incorporation into department of energy programs.--
     The Secretary of Energy shall, to the maximum extent 
     practicable, incorporate conclusions of the report under this 
     subsection into current Department of Energy building 
     performance and energy efficiency data collection and other 
     reporting programs.
       ``(m) Termination.--This section shall not apply to any 
     property placed in service after December 31, 2016.''.
       (b) Effect on Depreciation on Earnings and Profits.--
     Subparagraph (B) of section 312(k)(3), as amended by this 
     title, is amended--
       (1) by striking ``or 179E'' both places it appears in 
     clause (i) and inserting ``179E, or 179F'',
       (2) by striking ``or 179e'' in the heading and inserting 
     ``179e, or 179f'', and
       (3) by inserting ``or 179F'' after ``section 179D'' in 
     clause (ii)(I).
       (c) Conforming Amendment.--The table of sections for part 
     VI of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 179E the following new item:

``Sec. 179F. Deduction for retrofits of existing commercial and 
              multifamily buildings.''.

       (d) Effective Date.--Except as otherwise provided, the 
     amendments made by this section shall apply to property 
     placed in service in taxable years beginning after the date 
     of the enactment of this Act.

                   TITLE II--HOME ENERGY IMPROVEMENTS

     SEC. 201. PERFORMANCE BASED HOME ENERGY IMPROVEMENTS.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 25E. PERFORMANCE BASED ENERGY IMPROVEMENTS.

       ``(a) In General.--In the case of an individual, there 
     shall be allowed as a credit against the tax imposed by this 
     chapter for the taxable year for a qualified whole home 
     energy efficiency retrofit an amount determined under 
     subsection (b).
       ``(b) Amount Determined.--
       ``(1) In general.--Subject to paragraph (4), the amount 
     determined under this subsection is equal to--
       ``(A) the base amount under paragraph (2), increased by
       ``(B) the amount determined under paragraph (3).
       ``(2) Base amount.--For purposes of paragraph (1)(A), the 
     base amount is $2,000, but only if the energy use for the 
     residence is reduced by at least 20 percent below the 
     baseline energy use for such residence as calculated 
     according to paragraph (5).
       ``(3) Increase amount.--For purposes of paragraph (1)(B), 
     the amount determined under this paragraph is $500 for each 
     additional 5 percentage point reduction in energy use.
       ``(4) Limitation.--In no event shall the amount determined 
     under this subsection exceed the lesser of--
       ``(A) $5,000 with respect to any residence, or
       ``(B) 30 percent of the qualified home energy efficiency 
     expenditures paid or incurred by the taxpayer under 
     subsection (c) with respect to such residence.
       ``(5) Determination of energy use reduction.--For purposes 
     of this subsection--
       ``(A) In general.--The reduction in energy use for any 
     residence shall be determined by modeling the annual 
     predicted percentage reduction in total energy costs for 
     heating, cooling, hot water, and permanent lighting. It shall 
     be modeled using computer modeling software approved under 
     subsection (d)(2) and a baseline energy use calculated 
     according to subsection (d)(1)(C).
       ``(B) Energy costs.--For purposes of subparagraph (A), the 
     energy cost per unit of fuel for each fuel type shall be 
     determined by dividing the total actual energy bill for the 
     residence for that fuel type for the most recent available 
     12-month period by the total energy units of that fuel type 
     used over the same period.
       ``(c) Qualified Home Energy Efficiency Expenditures.--For 
     purposes of this section, the term `qualified home energy 
     efficiency expenditures'--
       ``(1) means any amount paid or incurred by the taxpayer 
     during the taxable year for a qualified whole home energy 
     efficiency retrofit, including the cost of diagnostic 
     procedures, labor, and modeling,
       ``(2) includes only measures that have an average estimated 
     life of 5 years or more as determined by the Secretary, after 
     consultation with the Secretary of Energy, and
       ``(3) does not include any amount which is paid or incurred 
     in connection with any expansion of the building envelope of 
     the residence.
       ``(d) Qualified Whole Home Energy Efficiency Retrofit.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified whole home energy 
     efficiency retrofit' means the implementation of measures 
     placed in service during the taxable year intended to reduce 
     the energy use of the principal residence of the taxpayer 
     which is located in the United States. A qualified whole home 
     energy efficiency retrofit shall--
       ``(A) subject to paragraph (4), be designed, implemented, 
     and installed by a contractor which is--
       ``(i) accredited by the Building Performance Institute 
     (hereafter in this section referred to as `BPI') or a 
     preexisting BPI accreditation-based State certification 
     program with enhancements to achieve State energy policy,
       ``(ii) a Residential Energy Services Network (hereafter in 
     this section referred to as `RESNET') accredited Energy Smart 
     Home Performance Team, or
       ``(iii) accredited by an equivalent certification program 
     approved by the Secretary, after consultation with the 
     Secretary of Energy, for this purpose,
       ``(B) install a set of measures modeled to achieve a 
     reduction in energy use of at least 20 percent below the 
     baseline energy use established in subparagraph (C), using 
     computer modeling software approved under paragraph (2),
       ``(C) establish the baseline energy use by calibrating the 
     model using sections 3 and 4 and Annex D of BPI Standard BPI-
     2400-S-2011: Standardized Qualification of Whole House Energy 
     Savings Estimates, or an equivalent standard approved by the 
     Secretary, after consultation with Secretary of Energy, for 
     this purpose,
       ``(D) document the measures implemented in the residence 
     through photographs taken before and after the retrofit, 
     including photographs of its visible energy systems and 
     envelope as relevant, and
       ``(E) implement a test-out procedure, following guidelines 
     of the applicable certification program specified under 
     clause (i) or (ii) of subparagraph (A), or equivalent 
     guidelines approved by the Secretary, after consultation with 
     the Secretary of Energy, for this purpose, to ensure--
       ``(i) the safe operation of all systems post retrofit, and
       ``(ii) that all improvements are included in, and have been 
     installed according to, standards of the applicable 
     certification program specified under clause (i) or (ii) of 
     subparagraph (A), or equivalent standards approved by the 
     Secretary, after consultation with the Secretary of Energy, 
     for this purpose.

     For purposes of subparagraph (A)(iii), an organization or 
     State may submit an equivalent certification program for 
     approval by the Secretary, in consultation with the Secretary 
     of Energy. The Secretary shall approve or deny such 
     submission not later than 180 days after receipt, and, if the 
     Secretary fails to respond in that time period, the submitted 
     equivalent certification program shall be considered 
     approved.
       ``(2) Approved modeling software.--For purposes of 
     paragraph (1)(B), the contractor (or, if applicable, the 
     person described in paragraph (4)) shall use modeling 
     software certified by RESNET as following the software 
     verification test suites in section 4.2.1 of RESNET 
     Publication No. 06-001 or certified by an alternative 
     organization as following an equivalent standard, as approved 
     by the Secretary, after consultation with the Secretary of 
     Energy, for this purpose.
       ``(3) Documentation.--The Secretary, after consultation 
     with the Secretary of Energy, shall prescribe regulations 
     directing what specific documentation is required to be 
     retained or submitted by the taxpayer in order to claim the 
     credit under this section, which shall include, in addition 
     to the photographs under paragraph (1)(D), a form approved by 
     the Secretary that is completed and signed by the qualified 
     whole home energy efficiency retrofit contractor under 
     penalties of perjury. Such form shall include--
       ``(A) a statement that the contractor (or, if applicable, 
     the person described in paragraph (4)) followed the specified 
     procedures for establishing baseline energy use and 
     estimating reduction in energy use,
       ``(B) the name of the software used for calculating the 
     baseline energy use and reduction in energy use, the 
     percentage reduction in projected energy savings achieved, 
     and a statement that such software was certified for this 
     program by the Secretary, after consultation with the 
     Secretary of Energy,
       ``(C) a statement that the contractor (or, if applicable, 
     the person described in paragraph (4)) will retain the 
     details of the calculations and underlying energy bills for 5 
     years and will make such details available for inspection by 
     the Secretary or the Secretary of Energy, if so requested,
       ``(D) a list of measures installed and a statement that all 
     measures included in the

[[Page S1931]]

     reduction in energy use estimate are included in, and 
     installed according to, standards of the applicable 
     certification program specified under clause (i) or (ii) of 
     subparagraph (A), or equivalent standards approved by the 
     Secretary, after consultation with the Secretary of Energy,
       ``(E) a statement that the contractor (or, if applicable, 
     the person described in paragraph (4)) meets the requirements 
     of paragraph (1)(A), and
       ``(F) documentation of the total cost of the project in 
     order to comply with the limitation under subsection 
     (b)(4)(B).
       ``(4) Certified home energy rater.--For purposes of 
     paragraph (1)(A), a contractor shall be deemed to have 
     satisfied the accreditation requirement under such paragraph 
     if the contractor enters into a contract with a person that 
     satisfies such accreditation requirement for purposes of 
     modeling the energy use reduction described in paragraph 
     (1)(B).
       ``(e) Additional Rules.--For purposes of this section--
       ``(1) No double benefit.--
       ``(A) In general.--With respect to any residence, no credit 
     shall be allowed under this section for any taxable year in 
     which the taxpayer claims a credit under section 25C.
       ``(B) Renewable energy systems and appliances.--In the case 
     of a renewable energy system or appliance that qualifies for 
     another credit under this chapter, the resulting reduction in 
     energy use shall not be taken into account in determining the 
     percentage energy use reductions under subsection (b).
       ``(C) No double benefit for certain expenditures.--The term 
     `qualified home energy efficiency expenditures' shall not 
     include any expenditure for which a deduction or credit is 
     claimed by the taxpayer under this chapter for the taxable 
     year or with respect to which the taxpayer receives any 
     Federal energy efficiency rebate.
       ``(2) Principal residence.--The term `principal residence' 
     has the same meaning as when used in section 121.
       ``(3) Special rules.--Rules similar to the rules under 
     paragraphs (4), (5), (6), (7), and (8) of section 25D(e) and 
     section 25C(e)(2) shall apply, as determined by the 
     Secretary, after consultation with the Secretary of Energy.
       ``(4) Basis adjustments.--For purposes of this subtitle, if 
     a credit is allowed under this section with respect to any 
     expenditure with respect to any property, the increase in the 
     basis of such property which would (but for this paragraph) 
     result from such expenditure shall be reduced by the amount 
     of the credit so allowed.
       ``(5) Election not to claim credit.--No credit shall be 
     determined under subsection (a) for the taxable year if the 
     taxpayer elects not to have subsection (a) apply to such 
     taxable year.
       ``(6) Multiple year retrofits.--If the taxpayer has claimed 
     a credit under this section in a previous taxable year, the 
     baseline energy use for the calculation of reduced energy use 
     must be established after the previous retrofit has been 
     placed in service.
       ``(f) Termination.--This section shall not apply with 
     respect to any costs paid or incurred after December 31, 
     2016.
       ``(g) Secretary Review.--The Secretary, after consultation 
     with the Secretary of Energy, shall establish a review 
     process for the retrofits performed, including an estimate of 
     the usage of the credit and a statistically valid analysis of 
     the average actual energy use reductions, utilizing utility 
     bill data collected on a voluntary basis, and report to 
     Congress not later than June 30, 2014, any findings and 
     recommendations for--
       ``(1) improvements to the effectiveness of the credit under 
     this section, and
       ``(2) expansion of the credit under this section to rental 
     units.''.
       (b) Conforming Amendments.--
       (1) Section 1016(a) is amended--
       (A) by striking ``and'' at the end of paragraph (36),
       (B) by striking the period at the end of paragraph (37) and 
     inserting ``, and'', and
       (C) by adding at the end the following new paragraph:
       ``(38) to the extent provided in section 25E(e)(4), in the 
     case of amounts with respect to which a credit has been 
     allowed under section 25E.''.
       (2) Section 6501(m) is amended by inserting ``25E(e)(5),'' 
     after ``section''.
       (3) The table of sections for subpart A of part IV of 
     subchapter A chapter 1 is amended by inserting after the item 
     relating to section 25D the following new item:

``Sec. 25E. Performance based energy improvements.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred for a qualified whole 
     home energy efficiency retrofit placed in service after 
     December 31, 2013.

           TITLE III--INDUSTRIAL ENERGY AND WATER EFFICIENCY

     SEC. 301. MODIFICATIONS IN CREDIT FOR COMBINED HEAT AND POWER 
                   SYSTEM PROPERTY.

       (a) Modification of Certain Capacity Limitations.--Section 
     48(c)(3)(B) is amended--
       (1) by striking ``15 megawatts'' in clause (ii) and 
     inserting ``25 megawatts'',
       (2) by striking ``20,000 horsepower'' in clause (ii) and 
     inserting ``34,000 horsepower'', and
       (3) by striking clause (iii).
       (b) Increase in Credit Percentage for Systems With Greater 
     Efficiency.--Subparagraph (A) of section 48(a)(2) is 
     amended--
       (1) by striking ``and'' at the end of subclause (III) of 
     clause (i),
       (2) by adding at the end of clause (i) the following new 
     subclause:

       ``(V) combined heat and power system property the energy 
     efficiency percentage of which (as defined in subsection 
     (c)(3)(C)(i)) is equal to or greater than 85 percent,'',

       (3) by redesignating clause (ii) as clause (iii),
       (4) by striking ``clause (i)'' in clause (iii), as so 
     redesignated, and inserting ``clause (i) or (ii)'', and
       (5) by inserting after clause (i) the following new clause:
       ``(ii) 20 percent in the case of combined heat and power 
     system property the energy percentage of which (as defined in 
     subsection (c)(3)(C)(i)) is equal to or greater than 75 
     percent and less than 85 percent, and''.
       (c) Extension.--Clause (iv) of section 48(c)(3)(A) is 
     amended by striking ``January 1, 2017'' and inserting 
     ``January 1, 2019''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to periods after the date of the enactment of 
     this Act, under rules similar to the rules of section 48(m) 
     of the Internal Revenue Code of 1986 (as in effect on the day 
     before the date of the enactment of the Revenue 
     Reconciliation Act of 1990).

     SEC. 302. INVESTMENT TAX CREDIT FOR BIOMASS HEATING PROPERTY.

       (a) In General.--Subparagraph (A) of section 48(a)(3) is 
     amended by striking ``or'' at the end of clause (vi), by 
     inserting ``or'' at the end of clause (vii), and by inserting 
     after clause (vii) the following new clause:
       ``(viii) open-loop biomass (within the meaning of section 
     45(c)(3)) heating property, including boilers or furnaces 
     which operate at output efficiencies of not less than 65 
     percent (measured by the higher heating value of the fuel) 
     and which provide thermal energy in the form of heat, hot 
     water, or steam for space heating, air conditioning, domestic 
     hot water, or industrial process heat, but only with respect 
     to periods ending before January 1, 2016,''.
       (b) 30 Percent and 15 Percent Credits.--
       (1) In general.--Subparagraph (A) of section 48(a)(2), as 
     amended by this title, is amended--
       (A) by redesignating clause (iii) as clause (iv),
       (B) by striking ``and'' at the end of clause (ii),
       (C) by striking ``clause (i) or (ii)'' in clause (iv), as 
     so redesignated, and inserting ``clause (i), (ii), or 
     (iii)'', and
       (D) by inserting after clause (ii) the following new 
     clause:
       ``(iii) 15 percent in the case of energy property described 
     in paragraph (3)(A)(viii) to which clause (i)(VI) does not 
     apply, and''.
       (2) Increased credit for greater efficiency.--Clause (i) of 
     section 48(a)(2)(A), as amended by this title, is amended by 
     striking ``and'' at the end of subclause (IV), by striking 
     the comma at the end of subclause (V) and inserting ``, 
     and'', and by inserting after subclause (V) the following new 
     subclause:

       ``(VI) energy property described in paragraph (3)(A)(viii) 
     which operates at an output efficiency of not less than 80 
     percent (measured by the higher heating value of the 
     fuel),''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to periods after the date of the enactment of 
     this Act, in taxable years ending after such date, under 
     rules similar to the rules of section 48(m) of the Internal 
     Revenue Code of 1986 (as in effect on the day before the date 
     of the enactment of the Revenue Reconciliation Act of 1990).

     SEC. 303. INVESTMENT TAX CREDIT FOR WASTE HEAT TO POWER 
                   PROPERTY.

       (a) In General.--Subparagraph (A) of section 48(a)(3), as 
     amended by this title, is amended by striking ``or'' at the 
     end of clause (vii), by striking the comma at the end of 
     clause (viii) and inserting ``, or'', and by inserting after 
     clause (viii) the following new clause:
       ``(ix) waste heat to power property,''.
       (b) 30-Percent Credit.--Clause (i) of section 48(a)(2)(A), 
     as amended by this title, is amended by striking ``and'' at 
     the end of subclause (V), by striking the comma at the end of 
     subclause (VI) and inserting ``, and'', and by inserting 
     after subclause (VI) the following new subclause:

       ``(VII) waste heat to power property,''.

       (c) Waste Heat To Power Property.--Subsection (c) of 
     section 48 is amended by adding at the end the following new 
     paragraph:
       ``(5) Waste heat to power property.--
       ``(A) In general.--The term `waste heat to power property' 
     means property--
       ``(i) comprising a system which generates electricity 
     through the recovery of a qualified waste heat resource, and
       ``(ii) which is placed in service before January 1, 2019.
       ``(B) Qualified waste heat resource.--The term `qualified 
     waste heat resource' means--
       ``(i) exhaust heat or flared gas from an industrial 
     process,
       ``(ii) waste gas or industrial tail gas that would 
     otherwise be flared, incinerated, or vented,
       ``(iii) a pressure drop in any gas for an industrial or 
     commercial process, or
       ``(iv) such other forms of waste heat resources as the 
     Secretary may determine.
       ``(C) Exception.--The term `qualified waste heat resource' 
     does not include any heat resource from a process whose 
     primary purpose

[[Page S1932]]

     is the generation of electricity utilizing a fossil fuel or 
     the production of oil, natural gas, or other fossil fuels.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to periods after the date of the enactment of 
     this Act, in taxable years ending after such date, under 
     rules similar to the rules of section 48(m) of the Internal 
     Revenue Code of 1986 (as in effect on the day before the date 
     of the enactment of the Revenue Reconciliation Act of 1990).

     SEC. 304. MOTOR ENERGY EFFICIENCY IMPROVEMENT TAX CREDIT.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 45S. MOTOR ENERGY EFFICIENCY IMPROVEMENT TAX CREDIT.

       ``(a) In General.--For purposes of section 38, the motor 
     energy efficiency improvement tax credit determined under 
     this section for the taxable year is an amount equal to $120 
     multiplied by the motor horsepower of an appliance, machine, 
     or equipment--
       ``(1) manufactured in such taxable year by a manufacturer 
     which incorporates an advanced motor and drive system into a 
     newly designed appliance, machine, or equipment or into a 
     redesigned appliance, machine, or equipment which did not 
     previously make use of the advanced motor and drive system, 
     or
       ``(2) placed back into service in such taxable year by an 
     end user which upgrades an existing appliance, machine, or 
     equipment with an advanced motor and drive system.

     For any advanced motor and drive system with a total 
     horsepower of less than 10, such motor energy efficiency 
     improvement tax credit is an amount which bears the same 
     ratio to $120 as such total horsepower bears to 1 horsepower.
       ``(b) Advanced Motor and Drive System.--For purposes of 
     this section, the term `advanced motor and drive system' 
     means a motor and any required associated electronic control 
     which--
       ``(1) offers variable or multiple speed operation, and
       ``(2) uses permanent magnet technology, electronically 
     commutated motor technology, switched reluctance motor 
     technology, synchronous reluctance, or such other motor and 
     drive systems technologies as determined by the Secretary of 
     Energy.
       ``(c) Aggregate Per Taxpayer Limitation.--
       ``(1) In general.--The amount of the credit determined 
     under this section for any taxpayer for any taxable year 
     shall not exceed the excess (if any) of $2,000,000 over the 
     aggregate credits allowed under this section with respect to 
     such taxpayer for all prior taxable years.
       ``(2) Aggregation rules.--For purposes of this section, all 
     persons treated as a single employer under subsections (a) 
     and (b) of section 52 shall be treated as 1 taxpayer.
       ``(d) Special Rules.--
       ``(1) Basis reduction.--For purposes of this subtitle, the 
     basis of any property for which a credit is allowable under 
     subsection (a) shall be reduced by the amount of such credit 
     so allowed.
       ``(2) No double benefit.--No other credit shall be 
     allowable under this chapter for property with respect to 
     which a credit is allowed under this section.
       ``(3) Property used outside united states not qualified.--
     No credit shall be allowable under subsection (a) with 
     respect to any property referred to in section 50(b)(1).
       ``(e) Application.--This section shall not apply to 
     property manufactured or placed back into service before the 
     date which is 6 months after the date of the enactment of 
     this section or after December 31, 2016.''.
       (b) Conforming Amendments.--
       (1) Section 38(b) is amended by striking ``plus'' at the 
     end of paragraph (35), by striking the period at the end of 
     paragraph (36) and inserting ``, plus'', and by adding at the 
     end the following new paragraph:
       ``(37) the motor energy efficiency improvement tax credit 
     determined under section 45S.''.
       (2) Section 1016(a) is amended by striking ``and'' at the 
     end of paragraph (36), by striking the period at the end of 
     paragraph (37) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(38) to the extent provided in section 45S(d)(1).''.
       (3) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 45S. Motor energy efficiency improvement tax credit.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to property manufactured or placed back into 
     service after the date which is 6 months after the date of 
     the enactment of this Act.

     SEC. 305. CREDIT FOR REPLACEMENT OF CFC REFRIGERANT CHILLER.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1, as amended by this title, is amended by adding at 
     the end the following new section:

     ``SEC. 45T. CFC CHILLER REPLACEMENT CREDIT.

       ``(a) In General.--For purposes of section 38, the CFC 
     chiller replacement credit determined under this section for 
     the taxable year is an amount equal to--
       ``(1) $150 multiplied by the tonnage rating of a CFC 
     chiller replaced with a new efficient chiller that is placed 
     in service by the taxpayer during the taxable year, plus
       ``(2) if all chilled water distribution pumps connected to 
     the new efficient chiller include variable frequency drives, 
     $100 multiplied by any tonnage downsizing.
       ``(b) CFC Chiller.--For purposes of this section, the term 
     `CFC chiller' includes property which--
       ``(1) was installed after 1980 and before 1993,
       ``(2) utilizes chlorofluorocarbon refrigerant, and
       ``(3) until replaced by a new efficient chiller, has 
     remained in operation and utilized for cooling a commercial 
     building.
       ``(c) New Efficient Chiller.--For purposes of this section, 
     the term `new efficient chiller' includes a water-cooled 
     chiller which is certified to meet efficiency standards 
     effective on January 1, 2015, as defined in table 6.8 in 
     Standard 90.1-2013 of the American Society of Heating, 
     Refrigerating, and Air Conditioning Engineers.
       ``(d) Tonnage Downsizing.--For purposes of this section, 
     the term `tonnage downsizing' means the amount by which the 
     tonnage rating of the CFC chiller exceeds the tonnage rating 
     of the new efficient chiller.
       ``(e) Energy Audit.--As a condition of receiving a tax 
     credit under this section, an energy audit shall be performed 
     on the building prior to installation of the new efficient 
     chiller, identifying cost-effective energy-saving measures, 
     particularly measures that could contribute to chiller 
     downsizing. The audit shall satisfy criteria that shall be 
     issued by the Secretary of Energy.
       ``(f) Property Used by Tax-Exempt Entity.--In the case of a 
     CFC chiller replaced by a new efficient chiller the use of 
     which is described in paragraph (3) or (4) of section 50(b), 
     the person who sold such new efficient chiller to the entity 
     shall be treated as the taxpayer that placed in service the 
     new efficient chiller that replaced the CFC chiller, but only 
     if such person clearly discloses to such entity in a document 
     the amount of any credit allowable under subsection (a) and 
     the person certifies to the Secretary that the person reduced 
     the price the entity paid for such new efficient chiller by 
     the entire amount of such credit.
       ``(g) Termination.--This section shall not apply to 
     replacements made after December 31, 2017.''.
       (b) Conforming Amendments.--
       (1) Section 38(b), as amended by this title, is amended by 
     striking ``plus'' at the end of paragraph (36), by striking 
     the period at the end of paragraph (37) and inserting ``, 
     plus'', and by adding at the end the following new paragraph:
       ``(38) the CFC chiller replacement credit determined under 
     section 45T.''.
       (2) The table of sections for subpart D of part IV of 
     subchapter A of chapter 1, as amended by this title, is 
     amended by adding at the end the following new item:

``Sec. 45T. CFC chiller replacement credit.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to replacements made after the date of the 
     enactment of this Act.

     SEC. 306. QUALIFYING EFFICIENT INDUSTRIAL PROCESS WATER USE 
                   PROJECT CREDIT.

       (a) In General.--Section 46 is amended by inserting a comma 
     at the end of paragraph (4), by striking ``and'' at the end 
     of paragraph (5), by striking the period at the end of 
     paragraph (6) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(7) the qualifying efficient industrial process water use 
     project credit.''.
       (b) Amount of Credit.--Subpart E of part IV of subchapter A 
     of chapter 1 is amended by inserting after section 48D the 
     following new section:

     ``SEC. 48E. QUALIFYING EFFICIENT INDUSTRIAL PROCESS WATER USE 
                   PROJECT CREDIT.

       ``(a) In General.--
       ``(1) Allowance of credit.--For purposes of section 46, the 
     qualifying efficient industrial process water use project 
     credit for any taxable year is an amount equal to the 
     applicable percentage of the qualified investment for such 
     taxable year with respect to any qualifying efficient 
     industrial process water use project of the taxpayer.
       ``(2) Applicable percentage.--For purposes of subsection 
     (a)--
       ``(A) In general.--The applicable percentage is--
       ``(i) 10 percent in the case of a qualifying efficient 
     industrial process water use project which achieves a 25 
     percent or greater (but less than 50 percent) reduction in 
     water use for industrial purposes,
       ``(ii) 20 percent in the case of a qualifying efficient 
     industrial process water use project which achieves a 50 
     percent or greater (but less than 75 percent) reduction in 
     water use for industrial purposes, and
       ``(iii) 30 percent in the case of a qualifying efficient 
     industrial process water use project which achieves a 75 
     percent or greater reduction in water use for industrial 
     purposes.
       ``(B) Water use.--For purposes of subparagraph (A)--
       ``(i) Measurement of reduction in water use.--

       ``(I) In general.--The taxpayer shall elect one of the 
     methods specified in clause (ii) for measuring the reduction 
     in water use achieved by a qualifying efficient industrial 
     process water use project.
       ``(II) Irrevocable election.--An election under subclause 
     (I), once made with respect to a qualifying efficient 
     industrial process water use project, shall apply to the 
     taxable year for which made and all subsequent taxable years, 
     and may not be revoked.

[[Page S1933]]

       ``(III) Projected savings.--The credit under subsection (a) 
     may be claimed on the basis of a reduction in water use which 
     is projected, by a registered professional engineer who is 
     not a related person (within the meaning of section 
     144(a)(3)(A)) to the taxpayer or the installer of eligible 
     property, to be achieved by a qualifying efficient industrial 
     process water use project. Such projection, if used as a 
     basis for determining the credit under subsection (a), shall 
     be included with the return of tax.

       ``(ii) Methods specified.--The methods specified in this 
     clause are--

       ``(I) a measurement of the percentage reduction in water 
     use per unit of product manufactured by the taxpayer, and
       ``(II) a measurement of the percentage reduction in water 
     use per pound of product manufactured by the taxpayer.

       ``(b) Qualified Investment.--
       ``(1) In general.--For purposes of subsection (a), the 
     qualified investment for any taxable year is the basis of 
     eligible property placed in service by the taxpayer during 
     such taxable year which is part of a qualifying efficient 
     industrial process water use project.
       ``(2) Exceptions.--Such term shall not include any portion 
     of the basis related to--
       ``(A) permitting,
       ``(B) land acquisition, or
       ``(C) infrastructure not directly associated with the 
     implementation of the technology or process improvements of 
     the qualifying efficient industrial process water use 
     project.
       ``(3) Certain qualified progress expenditures rules made 
     applicable.--Rules similar to the rules of subsections (c)(4) 
     and (d) of section 46 (as in effect on the day before the 
     enactment of the Revenue Reconciliation Act of 1990) shall 
     apply for purposes of this section.
       ``(4) Special rule for subsidized energy financing.--Rules 
     similar to the rules of section 48(a)(4) (without regard to 
     subparagraph (D) thereof) shall apply for purposes of this 
     section.
       ``(5) Limitation.--The amount which is treated for all 
     taxable years with respect to any qualifying efficient 
     industrial process water use project with respect to any site 
     shall not exceed $10,000,000.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Qualifying efficient industrial process water use 
     project.--
       ``(A) In general.--The term `qualifying efficient 
     industrial process water use project' means, with respect to 
     any site, a project which retrofits or expands an existing 
     facility to implement technology or process improvements 
     which are designed to reduce water use for systems that use 
     any form of water in the production of goods in the 
     manufacturing sector (as defined in North American Industrial 
     Classification System codes 31, 32, and 33), including any 
     system that uses water for heating, cooling, or energy 
     production for the production of goods in the trade or 
     business of manufacturing (other than extraction of fossil 
     fuels). Such term shall not include a project which alters an 
     existing facility to change the type of goods produced by 
     such facility.
       ``(B) Systems.--For purposes of subparagraph (A), the term 
     `system' does not include any system which does not encompass 
     1 or more complete processes.
       ``(2) Eligible property.--The term `eligible property' 
     means any property--
       ``(A) which is part of a qualifying efficient industrial 
     process water use project and which is necessary for the 
     reduction in water use described in paragraph (1),
       ``(B)(i) the construction, reconstruction, or erection of 
     which is completed by the taxpayer, or
       ``(ii) which is acquired by the taxpayer if the original 
     use of such property commences with the taxpayer, and
       ``(C) with respect to which depreciation (or amortization 
     in lieu of depreciation) is allowable.
       ``(3) Water use.--
       ``(A) In general.--The term `water use' means all water 
     taken for use at the site directly from ground and surface 
     water sources together with any water supplied to the site by 
     a regulated water system.
       ``(B) Regulated water system.--The term `regulated water 
     system' means a system that supplies water that has been 
     treated to potable standards.
       ``(d) Termination.--This section shall not apply to periods 
     after December 31, 2017, under rules similar to the rules of 
     section 48(m) (as in effect on the day before the date of the 
     enactment of the Revenue Reconciliation Act of 1990).''.
       (c) Conforming Amendments.--
       (1) Section 49(a)(1)(C) is amended by striking ``and'' at 
     the end of clause (v), by striking the period at the end of 
     clause (vi) and inserting ``, and'', and by adding at the end 
     the following new clause:
       ``(vii) the basis of any property which is part of a 
     qualifying efficient industrial use water project under 
     section 48E.''.
       (2) The table of sections for subpart E of part IV of 
     subchapter A of chapter 1 is amended by inserting after the 
     item relating to section 48D the following new item:

``Sec. 48E. Qualifying efficient industrial process water use project 
              credit.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to periods after the date of the enactment of 
     this Act, under rules similar to the rules of section 48(m) 
     of the Internal Revenue Code of 1986 (as in effect on the day 
     before the date of the enactment of the Revenue 
     Reconciliation Act of 1990).

  Mrs. FEINSTEIN. Mr. President, I rise to join Senators Cardin and 
Schatz in introducing the Energy Efficiency Tax Incentives Act.
  This bill has been drafted cooperatively, and my colleagues have been 
especially accommodating of changes requested by California's experts. 
I thank them for their hard work on this bill.
  This legislation revises and extends energy efficiency tax incentives 
for homes, commercial buildings, and industrial facilities.
  The bill continues the effort for energy efficiency improvements that 
I began with Senator Bob Smith of New Hampshire in 2001. I was proud to 
pass that legislation with Senator Snowe in 2005.
  The Energy Efficiency Tax Incentives Act builds on that law by 
reforming tax code incentives to implement a performance-based regime 
in which incentives grow larger as energy efficiency increases.
  The policy improvements in this bill were recommended by energy 
efficiency experts.
  This bill establishes energy and water efficiency incentives for 
commercial buildings and industrial facilities, about which Senator 
Cardin and Senator Schatz have focused their remarks.
  I would like to focus on a different provision in the bill: tax 
credits for home renovations that will increase energy efficiency of 
homes by at least 20 percent.
  The tax credit would increase in size with every 5 percent of 
additional energy efficiency improvement achieved.
  Homeowners who improve the efficiency of their home by more than 50 
percent will qualify for a maximum credit of $5,000.
  In addition to increased energy efficiency, this bill helps address 
the continued double digit unemployment in the construction sector.
  It is clear that we need policies that will help put the construction 
industry back to work, but with 10 percent of homes still vacant, any 
stimulation of new-home construction could make the situation worse.
  That is why this bill is so creative--it stimulates the construction 
industry by incentivizing the renovation of existing homes.
  This bill creates tax incentives for energy efficiency home 
renovation based on the energy performance of the home, rather than 
just the cost of the equipment.
  Current policy allows homeowners to claim credits for the purchase of 
energy efficient insulation, windows, doors, heaters, air conditioners 
and water heaters. That approach is expensive, costing about $2 billion 
per year.
  By restructuring the credit to apply to whole-home energy renovations 
that reward energy efficiency performance, this proposal has the 
potential to increase effectiveness while substantially lowering the 
cost to the U.S. Treasury.
  This legislation also includes provisions to promote effectiveness 
and prevent abuse. The contractor carrying out the work must sign an 
affidavit certifying the work was done, as well as submit photographs 
of the work. Additionally, the contractor must use certified, computer-
based energy efficiency measurement tools.
  The credit would be limited to renovations of primary residences that 
do not increase the size of the home. The credit would be capped at 30 
percent of the cost of renovation in order to prevent homeowners from 
making large claims for relatively inexpensive renovations.
  Since it is a tax credit, all claims would be subject to IRS audits.
  In addition to incentivizing energy efficiency improvements, the bill 
also creates an Industrial Process Water Use Project Credit.
  This is a technology-neutral, performance-based tax credit for 
implementing efficiency measures to reduce the use of water in the 
manufacturing sector.
  In a state like California, which frequently faces very dry 
conditions, rewarding water conservation and efficiency measures is 
beneficial.
  Much like the energy provisions, the bill increases the tax 
incentives as water savings grow.
  The incentive begins with a 10 percent tax credit for implementing 
efficiency measures that achieve at least

[[Page S1934]]

25 percent reduction in water use. The tax credit then increases by 10 
percent for each 25 percent additional water savings, with a 30 percent 
maximum.
  This bill is important because it will help incentivize the 
construction industry to upgrade buildings across the country.
  The 113 million homes in America account for 22 percent of the U.S. 
energy use, according to the Department of Energy. And 4.8 million 
commercial and 350,000 industrial facilities account for an additional 
18 percent.
  These buildings also account for 27 percent of carbon dioxide 
emissions in the United States, according to the Energy Information 
Administration.
  Experts and scientists believe improving energy efficiency is one of 
the most cost-effective ways to combat climate change and reduce 
greenhouse gas emissions.
  A recent McKinsey & Co. study concluded that maximizing energy 
efficiency for homes and commercial buildings could help reduce U.S. 
energy consumption by 23 percent by 2020.
  This is a jobs bill that also rewards energy and water efficiency 
renovations. It will lead to more jobs in the construction sector, an 
increase in energy efficiency, a reduction in pollution, and an 
expansion of the market for efficient technology and products.
  This bill is supported by the Alliance to Save Energy, Efficiency 
First, the American Council for an Energy Efficient Economy, and the 
Natural Resource Defense Council.
  This sort of investment--putting Americans back to work to upgrade 
the country's infrastructure--is the type of legislation on which 
Congress should be spending more time.
  Mr. SCHATZ. Mr. President, I rise today to discuss the important role 
that energy efficiency plays in our transition to a clean energy 
economy, and the importance of supporting energy efficiency efforts 
with strong Federal policy. Today, Senators Cardin, Feinstein, and I 
introduced comprehensive legislation, called the Energy Efficiency Tax 
Incentives Act of 2014, to reform, improve, and extend crucial tax 
incentives for energy efficiency. Our legislation focuses on three key 
sectors: commercial buildings, homes, and industry and manufacturing. 
My colleagues have spoken ably about the first two already today, and I 
would like to spend a few moments discussing the third title of this 
bill.
  This bill would create targeted, non-permanent incentives to help the 
U.S. industrial sector become more globally competitive by employing 
smart technological improvements to reduce energy use and encourage 
water reuse.
  We have continually seen the eagerness of U.S. industries to innovate 
and improve the processes by which they produce countless high-quality 
goods. This set of incentives will help U.S. manufacturers accelerate 
and expand cutting-edge ideas while also reducing costs.
  Industrial and manufacturing facilities have processes specific to 
each industry and even to each facility. Therefore, industrial 
efficiency improvements must be focused on these processes, not 
building retrofits like we see in commercial and residential efficiency 
measures. My colleagues and I have worked to develop incentives that 
target energy-intensive processes common to the industrial sector. They 
include advanced motors, water reuse, combined heat and power and waste 
heat recovery, thermal biomass, and efficient chillers. I would like to 
take a few moments to describe the various sections of the industrial 
efficiency title of the bill.
  On average, motors account for over 65 percent of an industrial 
energy user's electricity use, according to analysis by the 
International Energy Agency. This bill creates a credit for advanced 
industrial use motors, including variable speed motors. New advances in 
power electronics and controls over the past 5 years have advanced the 
potential for new smart motor technologies to provide a significant 
energy savings potential if these new motors are placed widely into 
service.
  According to the National Water Reuse Association, the U.S. currently 
reuses only 7.3 percent of its water, and there is significant 
potential for gains in this area. The industrial sector, which is 
responsible for 62.5 percent of domestic freshwater withdrawals, is an 
ideal place to introduce transformative water reuse and water saving 
technologies. The bill would create a technology-neutral, performance-
based investment tax credit for reuse, recycling, and/or efficiency 
measures related to industrial water reuse in the manufacturing sector.
  A recent Department of Energy study estimates that achieving the 
President's goal of 40 gigawatts of Combined Heat and Power, also known 
as CHP, would save energy users $10 billion a year compared to current 
energy use. In 2008, Congress enacted a 10 percent investment tax 
credit for combined heat and power systems. The bill would expand that 
credit's applicability, from the first 15 megawatts to the first 25 
megawatts of system capacity. The bill would also remove the existing 
overall system size cap of 50 megawatts, allowing a greater number of 
combined heat and power projects to be financially viable and move 
forward. Finally, the bill would create two new tiers of the credit for 
CHP systems that achieve especially high efficiency levels. By 
encouraging adoption of CHP and waste heat recovery technologies, this 
bill is a common-sense set of incentives that will help manufacturers 
to become more efficient, reduce energy costs, create highly skilled 
jobs, and ensure the delivery of reliable power.
  New technologies have developed recently that can take advantage of 
low-grade heat sources. Called Waste Heat to Power, these systems can 
achieve even greater levels of efficiency from industrial and 
manufacturing applications.
  Currently no incentives exist to promote thermal-only biomass use for 
commercial and industrial applications. Using biomass for thermal 
applications has numerous advantages over using biomass to produce 
electricity. Thermal use is significantly more efficient, less 
polluting, and more appropriately-scaled to biomass resources.
  Finally, large water-cooled chillers are the engines of air-
conditioning systems for almost all large buildings. This bill would 
establish a tax credit that incentivizes the replacement of older 
chillers that still use environmentally harmful CFC refrigerants with 
chillers that are both more efficient and use fewer harmful chemicals.
  Recent years have seen a resurgence in American industry and 
manufacturing. As we work to get our economy back on track, become more 
competitive globally, and fight climate change, we should consider 
robust efficiency incentives for our industrial sector as a crucial 
tool in achieving those goals.
  I would like to commend my colleagues Senator Cardin and Senator 
Feinstein for their hard work on this bill. It represents the latest 
thinking in terms of straightforward, performance-based technology-
neutral, non-permanent efficiency incentives. As we aim to improve 
efficiency in the industrial, commercial building, and residential 
sectors, I urge my colleagues in the Senate to support this critical 
bill.
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