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Hope Ashiabor Associate Professor Macquarie University Larry Kreiser Professor Emeritus

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. Energy Efficiency. “We Must Become the Change We Want to See”

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Hope Ashiabor Associate Professor Macquarie University Larry Kreiser Professor Emeritus

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  1. 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

  2. Energy Efficiency “We Must Become the Change We Want to See” Gandhi

  3. Clean Energy Resources • Supply Side • Wind power • Solar power • Water power • Biomass power • Demand Side • Energy efficiency

  4. Energy Efficiency Resource • Definition – produce more with less energy. • Energy efficiency is an energy resource • Energy efficiency is a zero emissions energy resource

  5. 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

  6. PART 1 - Background Information on Climate Change • Climate change mitigation versus adaptation • Carbon 350 • Consumer education

  7. Climate Change Mitigation versus Adaptation • Mitigation – slow or stop climate change • Adaptation – adjust to a changing climate

  8. Carbon 350 • Pre-Industrial Revolution – Carbon 280ppmv • Current – Carbon 380ppmv • Tipping Point – Carbon 450ppmv • 2100 – Carbon 490ppmv to 1,260ppmv • Goal – Carbon 350ppmv

  9. Consumer Education on Energy Efficiency Resource • Millions of individual units making decisions • Fragmented market • Limited government education programs

  10. 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

  11. 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.

  12. Three E’s of Operational Consulting • Energy economy– least cost • Energy efficiency– best way • Energy effectiveness– accomplish intended purpose

  13. 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

  14. 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)

  15. 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)

  16. Example of Self-Assessment Energy Audit – Subaru of Indiana • Result – 14% reduction in energy consumption per car produced since 2000 • Increase efficiency, reduce waste, increase profits • Management leadership is vital • Engage front line in process • Involve supply-chain in process

  17. Example of Self-Assessment Energy Audit – Subaru of Indiana • Waste is a potential product (Henry Ford) • Process may create competitive advantage (Wall Street Journal, 3/23/2009, p. R4)

  18. 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

  19. 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

  20. 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

  21. 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)

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

  27. 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

  28. 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)

  29. 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

  30. 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

  31. PART 6 - Current Tax Incentives for Household Energy Efficiency Projects in Australia • Home Insulation Rebate Scheme • Solar Hot Water Rebate Scheme • Green Loans Scheme

  32. 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

  33. 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

  34. 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

  35. 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

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