Transcript Paper 37-PPS-Kreiser

The Role Of Energy Audits And
Tax Incentives In Fostering
Energy Efficiency:
A Winning Combination
Hope Ashiabor
Associate Professor
Macquarie University
Larry Kreiser
Professor Emeritus
Cleveland State University
Hope Ashiabor Associate Professor
Department of Business Law
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Energy Efficiency
“We Must Become the Change
We Want to See”
Gandhi
Hope Ashiabor Associate Professor
Department of Business Law
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Clean Energy Resources
• Supply Side
Wind power
Solar power
Water power
Biomass power
• Demand Side
Energy efficiency
Hope Ashiabor Associate Professor
Department of Business Law
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Energy Efficiency Resource
• Definition – produce more with less energy.
• Energy efficiency is an energy resource
• Energy efficiency is a zero emissions
energy resource
Hope Ashiabor Associate Professor
Department of Business Law
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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
Hope Ashiabor Associate Professor
Department of Business Law
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PART 1 - Background Information on
Climate Change
• Climate change mitigation versus adaptation
• Carbon 350
• Consumer education
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Department of Business Law
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Climate Change Mitigation versus
Adaptation
• Mitigation – slow or stop climate change
• Adaptation – adjust to a changing climate
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Department of Business Law
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Carbon 350
• Pre-Industrial Revolution – Carbon
280ppmv
• Current – Carbon 380ppmv
• Tipping Point – Carbon 450ppmv
• 2100 – Carbon 490ppmv to 1,260ppmv
• Goal – Carbon 350ppmv
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Department of Business Law
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Consumer Education on
Energy Efficiency Resource
• Millions of
decisions
individual
units
making
• Fragmented market
• Limited government education programs
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Department of Business Law
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PART 2 - Energy Audits and Investment
Analysis of Energy Projects
• What is an energy audit?
• Value of energy audit
• Example of energy audit
• Investment analysis of energy projects
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Department of Business Law
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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.
Hope Ashiabor Associate Professor
Department of Business Law
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Three E’s of
Operational Consulting
• Energy economy
– least cost
• Energy efficiency
– best way
• Energy effectiveness – accomplish intended
purpose
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Department of Business Law
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Value of Energy Audit
• Access to special expertise
• Identify potential energy cost savings
• Benchmarking data available
• Compliance
regulations
with
various
environmental
• Compliance with workplace requirements
Hope Ashiabor Associate Professor
Department of Business Law
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Available Sources of Energy Audits
• Government Audits (Example: Regional
Energy Efficiency Program-Western Australia)
• On-line
Audits
(Certification
available for walk-through audits)
program
• Utility Company Audits
• Self-Assessment Audits (Energy efficiency
training courses available)
Hope Ashiabor Associate Professor
Department of Business Law
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Available Sources of Energy Audits
• 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)
Hope Ashiabor Associate Professor
Department of Business Law
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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
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Department of Business Law
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Example of Self-Assessment Energy Audit
– Subaru of Indiana
5. Waste is a potential product (Henry Ford)
6. Process may create competitive advantage
(Wall Street Journal, 3/23/2009, p. R4)
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Department of Business Law
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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
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Department of Business Law
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PART 3 - Other Information on
Energy Efficiency Resource
• McKinsey & Co. report on unlocking energy
efficiency in U. S. Economy
• Energy efficiency resource and economic growth
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Department of Business Law
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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
Hope Ashiabor Associate Professor
Department of Business Law
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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)
Hope Ashiabor Associate Professor
Department of Business Law
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PART 4 - Current Tax Incentives for Energy
Efficiency Projects in the United States
• 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
Hope Ashiabor Associate Professor
Department of Business Law
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Other Cash Grants for Energy
Efficiency Projects in the United States
• Energy efficiency improvements for lowincome households
• Energy efficiency improvements for public
housing
• Appliance rebate program
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Department of Business Law
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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
Hope Ashiabor Associate Professor
Department of Business Law
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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
Hope Ashiabor Associate Professor
Department of Business Law
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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
Hope Ashiabor Associate Professor
Department of Business Law
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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
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Department of Business Law
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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)
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Department of Business Law
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Energy Efficiency Opportunities Act 2006
(Cth)
• 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
Hope Ashiabor Associate Professor
Department of Business Law
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Energy Efficiency Opportunities Act 2006
(Cth)
• 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
Hope Ashiabor Associate Professor
Department of Business Law
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PART 6 - Current Tax Incentives for Household
Energy Efficiency Projects in Australia
• Home Insulation Rebate Scheme
• Solar Hot Water Rebate Scheme
• Green Loans Scheme
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Department of Business Law
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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
Hope Ashiabor Associate Professor
Department of Business Law
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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
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Department of Business Law
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Green Loans Scheme
• $175m earmarked for the program
free 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
Hope Ashiabor Associate Professor
Department of Business Law
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PART 7 – Summary and Conclusions
• 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
Hope Ashiabor Associate Professor
Department of Business Law
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