1. 1 Hope Ashiabor Associate Professor Department of Business Law 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. 2 Hope Ashiabor Associate Professor Department of Business Law Energy Efficiency “We Must Become the Change We Want to See” Gandhi

3. 3 Hope Ashiabor Associate Professor Department of Business Law Clean Energy Resources Supply Side Wind power Solar power Water power Biomass power Demand Side Energy efficiency

4. 4 Hope Ashiabor Associate Professor Department 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

5. 5 Hope Ashiabor Associate Professor Department 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

6. 6 Hope Ashiabor Associate Professor Department of Business Law PART 1 - Background Information on Climate Change Climate change mitigation versus adaptation Carbon 350 Consumer education

7. 7 Hope Ashiabor Associate Professor Department of Business Law Climate Change Mitigation versus Adaptation Mitigation – slow or stop climate change Adaptation – adjust to a changing climate

8. 8 Hope Ashiabor Associate Professor Department 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

9. 9 Hope Ashiabor Associate Professor Department of Business Law Consumer Education on Energy Efficiency Resource Millions of individual units making decisions Fragmented market Limited government education programs

10. 10 Hope Ashiabor Associate Professor Department 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

11. 11 Hope Ashiabor Associate Professor Department 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.

12. 12 Hope Ashiabor Associate Professor Department of Business Law Three E’s of Operational Consulting Energy economy – least cost Energy efficiency – best way Energy effectiveness – accomplish intended purpose

13. 13 Hope Ashiabor Associate Professor Department 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

14. 14 Hope Ashiabor Associate Professor Department 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)

15. 15 Hope Ashiabor Associate Professor Department 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

16. 16 Hope Ashiabor Associate Professor Department 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

17. 17 Hope Ashiabor Associate Professor Department 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

18. 18 Hope Ashiabor Associate Professor Department 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

19. 19 Hope Ashiabor Associate Professor Department 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

20. 20 Hope Ashiabor Associate Professor Department 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

21. 21 Hope Ashiabor Associate Professor Department 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)

22. 22 Hope Ashiabor Associate Professor Department 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

23. 23 Hope Ashiabor Associate Professor Department 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

24. 24 Hope Ashiabor Associate Professor Department 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

25. 25 Hope Ashiabor Associate Professor Department 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

26. 26 Hope Ashiabor Associate Professor Department 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

27. 27 Hope Ashiabor Associate Professor Department 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

28. 28 Hope Ashiabor Associate Professor Department of Business Law 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. 29 Hope Ashiabor Associate Professor Department 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

30. 30 Hope Ashiabor Associate Professor Department 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

31. 31 Hope Ashiabor Associate Professor Department 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

32. 32 Hope Ashiabor Associate Professor Department 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

33. 33 Hope Ashiabor Associate Professor Department 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

34. 34 Hope Ashiabor Associate Professor Department of Business Law 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. 35 Hope Ashiabor Associate Professor Department 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