1 Hope Ashiabor Associate Professor Department of Business Law The Role Of Energy Audits And Tax Incentives In Fostering Energy Efficiency: A Winning Combination

1Hope Ashiabor Associate ProfessorDepartment of Business Law

The Role Of Energy Audits And Tax Incentives In Fostering

Energy Efficiency:A Winning Combination

Hope AshiaborAssociate Professor

Macquarie University

Larry Kreiser Professor Emeritus

Cleveland State University


Energy Efficiency

“We Must Become the Change

We Want to See”

Gandhi


Clean Energy Resources

• Supply SideWind power

Solar power

Water power

Biomass power

• Demand SideEnergy efficiency


Energy Efficiency Resource

• Definition – produce more with less energy.

• Energy efficiency is an energy resource

• Energy efficiency is a zero emissions energy resource


Two Themes of Paper

• Energy Audits – the review of any operation or

activity within a business or personal activity with

the purpose of improving its energy efficiency

• Tax Incentives – tax credits or other economic

incentives to lessen the cost of installing energy

efficiency improvements


PART 1 - Background Information on Climate Change

• Climate change mitigation versus adaptation

• Carbon 350

• Consumer education


Climate Change Mitigation versus Adaptation

• Mitigation – slow or stop climate change

• Adaptation – adjust to a changing climate


• Pre-Industrial Revolution – Carbon 280ppmv

• Current – Carbon 380ppmv

• Tipping Point – Carbon 450ppmv

• 2100 – Carbon 490ppmv to 1,260ppmv

• Goal – Carbon 350ppmv

Carbon 350


Consumer Education on Energy Efficiency Resource

• Millions of individual units making decisions

• Fragmented market

• Limited government education programs


• What is an energy audit?

• Value of energy audit

• Example of energy audit

• Investment analysis of energy projects

PART 2 - Energy Audits and Investment Analysis of Energy Projects


What is an Energy Audit?

• Energy Audit – the review of any operation or activity within a business or personal activity with the purpose of improving its energy efficiency.

• Energy efficiency is measured on a per unit of output basis.


Three E’s of Operational Consulting

• Energy economy – least cost

• Energy efficiency – best way

• Energy effectiveness – accomplish intended purpose


Value of Energy Audit• Access to special expertise

• Identify potential energy cost savings

• Benchmarking data available

• Compliance with various environmental regulations

• Compliance with workplace requirements


Available Sources of Energy Audits• Government Audits (Example: Regional

Energy Efficiency Program-Western Australia)

• On-line Audits (Certification program available for walk-through audits)

• Utility Company Audits

• Self-Assessment Audits (Energy efficiency training courses available)


• Paid Consultant Audits (Walk-through energy audits)

• Supply-Chain Audits (Wal-Mart)

• Proposed “Cash for Caulkers” Program in U.S. (energy audits/jobs/energy efficiency)

Available Sources of Energy Audits


Example of Self-Assessment Energy Audit – Subaru of Indiana

• Result – 14% reduction in energy consumption per car produced since 2000

1. Increase efficiency, reduce waste, increase profits

2. Management leadership is vital

3. Engage front line in process

4. Involve supply-chain in process


5. Waste is a potential product (Henry Ford)

6. Process may create competitive advantage

(Wall Street Journal, 3/23/2009, p. R4)

Example of Self-Assessment Energy Audit – Subaru of Indiana


Investment Analysis of Energy Efficiency Resource Projects

• Payback Period – Initial investment divided by annual energy savings after tax effect

• Present Value Analysis – inflows and outflows take place in different periods

• Internal Rate of Return – Rate of return on capital investment


• McKinsey & Co. report on unlocking energy efficiency in U. S. Economy

• Energy efficiency resource and economic growth

PART 3 - Other Information on Energy Efficiency Resource


McKinsey & Co. Report on Unlocking Energy Efficiency in U. S. Economy (2009)

• Conclusion – A coordinated energy efficiency program in the U.S. can reduce non-transportation energy consumption by 23 percent of 2020 projected demand

• Since 1980, energy usage per unit of measure has been decreasing steadily

• Upfront funding of energy efficiency projects is a significant barrier


Energy Efficiency Resource and Economic Growth

• U. S. Goal – Cut greenhouse gas emissions by 80% below 2005 levels by 2050

• Can this goal be reached without affecting economic growth?

• 1990-2007 – world emissions rose 38%, world economic growth rose 75%, emissions per unit of economic activity fell by 20%

(WSJ, 12/21/09, p. R3)


• Homeowner tax credit for energy efficiency improvements

• Contractor tax credit for energy efficient new homes

• Manufacturer tax credit for energy efficient household appliances

• Tax deduction for energy efficiency investments in commercial buildings

PART 4 - Current Tax Incentives for Energy Efficiency Projects in the United States


Other Cash Grants for Energy Efficiency Projects in the United States

• Energy efficiency improvements for low-income households

• Energy efficiency improvements for public housing

• Appliance rebate program


Homeowner Tax Credit for Energy Efficiency Improvements

• Residential Units –21% of energy use in U.S.

• Insulation, replacement windows, external doors, heating, cooling, fans, water heaters, biomass stoves

• 30% tax credit, $1,500 cap, must be primary residence

• Criticism – Low cap, higher amounts available for on-site renewable energy investments


Contractor Tax Credit for New Homes

• $2,000 tax credit for constructing energy efficient new home

• $1,000 tax credit for producing a new energy efficient manufactured home

• Home must be acquired as residence by December 31, 2009

• Criticism – Credit should be given to final consumer to stimulate home sales


Manufacturer Tax Credit for Energy Efficient Household Appliances

• $45-$200 tax credit to manufacturer for energy efficient clothes washers, dishwashers, and refrigerators for increases in production over two year rolling cycle.

• $75 million limit for each manufacturer

• Criticism – Credit should be given to final consumer to stimulate appliance sales


Deductions for Energy Efficient Investments in Commercial Buildings

• Tax deduction of up to $1.80 per square foot

• Available to owner or tenant

• New or reconstructed commercial building

• Must save at least 50% of heating, cooling, ventilation, water heater, and interior lighting energy cost

• Comment – No significant tax cost to government


Energy Efficiency Opportunities Act 2006 (Cth)

• Energy Efficiency Opportunities Act 2006 (Cth)

• Came into effect on 1 July 2006

• Requires large energy users to assess and report opportunities for promoting energy efficiency in their operations

• Applies to “controlling corporations” (similar to reporting legislation)



• Must register if energy use in corporate group exceeds 0.5 petajoules for year

• Roughly equal to 139,000 MWh; 13 ML diesel; 9000 tonnes LNG or 10,000 tonnes LPG

• Or energy bill of:$1.5 to $2.5 million for gas$5 to $10 million for electricity$11 million for diesel$13 million for unleaded petrol



• Must register within nine months of first financial year the group exceeds threshold (“trigger year”)

• Electricity generators and operators of electricity or gas transmission or distribution networks were exempt until July 2009 (as long as energy use from other activities was below the threshold)

• Can apply for exemption if unlikely to stay above threshold in subsequent years

• Can apply for deregistration if unlikely to meet threshold for next three years


• Home Insulation Rebate Scheme

• Solar Hot Water Rebate Scheme

• Green Loans Scheme

PART 6 - Current Tax Incentives for Household Energy Efficiency Projects in Australia


Home Insulation Rebate Scheme

• Installation of ceiling insulation in 420,000 homes

• Program currently suspended

New program starts June 1, 2010

Rebate reduced from $1,200 to $1,000

Household will claim rebate, not the installer

Increased training and compliance for installers


Solar Hot Water Rebate Scheme

• By end of January 2010 $850m blow out in the

cost of this program

• Old program eliminated on 20 February, 2010

New program starts immediately

Rebate cut from $1,200 to $1,000

Rebate for heat pumps cut from $1,000 to $600


Green Loans Scheme

• $175m earmarked for the programfree energy audits;

Program increased from 360,000 assessments to 960,000 assessments

Number of assessors limited to 5,000

green loans of up to $10k each to individuals for efficiency upgrades to homes

Subsidised funding for up to 75k interest-free green loans

• Program was eliminated in March 2010


• Tax Incentives - more meaningful tax incentives for energy efficiency resource

• Energy Efficiency Audits – start program of government subsidized energy efficiency audits

• Industrial/Commercial Tax Incentives – could result in increased tax revenues

• Consumer Education Programs – increase knowledge of potential energy savings

PART 7 – Summary and Conclusions

Documents

1 Hope Ashiabor Associate Professor Department of Business Law The Role Of Energy Audits And Tax Incentives In Fostering Energy Efficiency: A Winning Combination