Developers Need Better Tax Incentives to Adopt Green Roofs

Green roofs, long viewed as a solution to urban environmental challenges such as heat islands, have struggled to gain traction despite their potential to transform regional climates and, in some places, despite their tax benefits. They can improve rainwater runoff and substantially reduce cooling loads for buildings, positioning them as a critical tool for reducing urban energy usage and mitigating water management issues.

We need a dynamic approach that motivates faster green roof manufacturing and installation—and penalizes foot-dragging by developers and building owners. A tiered, time-sensitive tax incentive structure with high financial rewards for early adopters would help.

So far, tax initiatives haven’t translated into big progress. New York City, which began offering a green roof tax credit more than a decade ago, has seen a surprisingly low adoption rate. According to the New York City Department of Finance, only 14 properties have applied for and received abatements under the city’s green roof initiative since the policy was adopted in 2011.

City lawmakers have bolstered incentives to spur green roof adoption in new construction and retrofits, but these tax credit enhancements may not be enough to make a meaningful impact. This outcome mirrors results in cities around the world, where limited tax incentives fail to motivate property owners to undertake expensive installation costs.

A more effective policy would combine a period of high-value tax incentives with a phaseout, followed by a ramp-up of tax penalties—creating a financial downside to putting off upgrades. This likely would prompt property owners to act swiftly.

Take New York’s green roof policy. A tax break of $5.23 per square foot is constrained by the requirement of having at least 50% of the building covered by a green roof. The average cost of a green roof is between $25 and $30 per square foot, not including the cost of the underlying structural roof.

To put that in perspective, a green roof upgrade for a 1,700-square-foot roof would cost about $47,000, plus the cost of a new structural roof. A building owner in New York at best could hope to receive about $8,900. This puts the abatement’s dollar value at less than 20% of the cost for the green roof project, which could be seen as a purely optional upgrade because it’s not structurally necessary.

Making early adoption financially advantageous for developers and property owners would be a better policy. Early adopters could position themselves as leaders in sustainable real estate and reap the associated reputational benefits.

Gradually reducing the tax credit’s value would prevent procrastination and could offset holdouts waiting for green roofs’ cost per square foot to decrease—something that likely won’t happen without greater adoption. As the incentive decreases each year, those who delay would face diminished returns, making it harder to justify waiting for a better deal.

A truly effective policy also would impose consequences for those who delay beyond mere opportunity costs. After the initial five-year period of tax credits, the program should shift gears and apply tax penalties to property owners and developers who haven’t retrofitted or built in green roofs. This approach would help green roof adoption continue to rise after the incentive phase tapers off and may function as a longer-term incentive program at less cost.

Imagine a scenario where building owners can get a $20-per-square-foot tax credit or abatement for green roof installation during the first year of a five-year program. This large initial incentive would help offset installation costs and encourage owners to act quickly because, in future years, the credit would decrease until phasing out at the end of five years.

Thus, in the first year, a property owner who installed a green roof would receive the full $20-per-square-foot tax benefit. For a 5,000-square-foot roof, that’s a $100,000 reduction in tax liability—a huge offset to the installation costs when coupled with energy savings from the roof itself.

A property owner who waited until the second year would find the program offered only $16 per square foot, a 20% reduction. This downward cycle would continue until the end of the fifth year, when no credit would be available at all. Even after the credit expired, conversions made in the sixth year wouldn’t incur any penalty.

But penalties would start after the seventh year and culminate with a full $20-per-square-foot sanction at the end of the 10th year—the inverse of the earlier incentive structure. At the conclusion of the decade-long program, new construction would have to include a green roof installation of at least 50% to avoid a $20-per-square-foot penalty, which could be keyed to inflation in future years.

By offering generous credits early and phasing them out in favor of penalties, policymakers could look at the long-term cost of the program—with the later penalties offsetting the costs of early implementation.

Any tax policy designed to increase adoption of a sustainable practice should aim to be a good environmental choice and a smart financial decision. Using both incentives and penalties phases effectively doubles the fiscal impact of the former, leaving property owners and developers to decide between seeing their costs partially offset today or compounded on tomorrow.

Andrew Leahey is a tax and technology attorney, principal at Hunter Creek Consulting, and adjunct professor at Drexel Kline School of Law. Follow him on Mastodon at @andrew@esq.social

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