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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
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2Hope Ashiabor Associate ProfessorDepartment of Business Law
Energy Efficiency
“We Must Become the Change
We Want to See”
Gandhi
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3Hope Ashiabor Associate ProfessorDepartment of Business Law
Clean Energy Resources
• Supply SideWind power
Solar power
Water power
Biomass power
• Demand SideEnergy efficiency
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4Hope Ashiabor Associate ProfessorDepartment of Business Law
Energy Efficiency Resource
• Definition – produce more with less energy.
• Energy efficiency is an energy resource
• Energy efficiency is a zero emissions energy resource
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5Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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6Hope Ashiabor Associate ProfessorDepartment of Business Law
PART 1 - Background Information on Climate Change
• Climate change mitigation versus adaptation
• Carbon 350
• Consumer education
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7Hope Ashiabor Associate ProfessorDepartment of Business Law
Climate Change Mitigation versus Adaptation
• Mitigation – slow or stop climate change
• Adaptation – adjust to a changing climate
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8Hope Ashiabor Associate ProfessorDepartment of Business Law
• Pre-Industrial Revolution – Carbon 280ppmv
• Current – Carbon 380ppmv
• Tipping Point – Carbon 450ppmv
• 2100 – Carbon 490ppmv to 1,260ppmv
• Goal – Carbon 350ppmv
Carbon 350
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9Hope Ashiabor Associate ProfessorDepartment of Business Law
Consumer Education on Energy Efficiency Resource
• Millions of individual units making decisions
• Fragmented market
• Limited government education programs
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10Hope Ashiabor Associate ProfessorDepartment of Business Law
• 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
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11Hope Ashiabor Associate ProfessorDepartment of Business Law
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.
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12Hope Ashiabor Associate ProfessorDepartment of Business Law
Three E’s of Operational Consulting
• Energy economy – least cost
• Energy efficiency – best way
• Energy effectiveness – accomplish intended purpose
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13Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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14Hope Ashiabor Associate ProfessorDepartment of Business Law
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)
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15Hope Ashiabor Associate ProfessorDepartment of Business Law
• 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
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16Hope Ashiabor Associate ProfessorDepartment of Business Law
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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17Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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18Hope Ashiabor Associate ProfessorDepartment of Business Law
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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19Hope Ashiabor Associate ProfessorDepartment of Business Law
• 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
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20Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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21Hope Ashiabor Associate ProfessorDepartment of Business Law
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)
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22Hope Ashiabor Associate ProfessorDepartment of Business Law
• 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
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23Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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24Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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25Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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26Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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27Hope Ashiabor Associate ProfessorDepartment of Business Law
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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28Hope Ashiabor Associate ProfessorDepartment of Business Law
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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29Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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30Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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31Hope Ashiabor Associate ProfessorDepartment of Business Law
• Home Insulation Rebate Scheme
• Solar Hot Water Rebate Scheme
• Green Loans Scheme
PART 6 - Current Tax Incentives for Household Energy Efficiency Projects in Australia
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32Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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33Hope Ashiabor Associate ProfessorDepartment of Business Law
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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34Hope Ashiabor Associate ProfessorDepartment of Business Law
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
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35Hope Ashiabor Associate ProfessorDepartment of Business Law
• 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