Corrosion Prevention Tax Credit Initiative NACE Central Area Conference October 3rd, 2006 Houston, Texas

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1 Corrosion Prevention Tax Credit Initiative NACE Central Area Conference October 3rd, 2006 Houston, Texas

2 CORROSION: An Unnecessary Threat to Economic Growth

3 Annual Direct Cost of Corrosion in the USA i 3.1% of $9 Trillion US GDP (1998) i Greater than annual cost of all natural disasters in the USA (tornadoes, hurricanes, flooding) i Greater than the Agriculture component of the US GDP ($127 billion) i Greater than the Mining component of the US GDP ($106 billion)

4 Our Mantra Reactive Programs Repair & rehabilitation alone creates waste Replacement inevitable Hampers our ability to compete globally Endangers public safety Contaminates environment Creates insurance liability Proactive Programs Waste/costs are avoided w/ already fully-developed corrosion control technology 10:1 return on investment Creates & retains jobs Increases productivity Increases federal tax revenues Protects the environment Reduces liability/insurance claims & premiums

5 Reality Corrosion prevention is a maintenance expense t a regulatory requirement in many markets Discretionary expenditure Easy to delay Structures fail Structures must be replaced at great expense, or Businesses are lost forever

6 Options Encourage Prevention versus Reaction or Regulation Option 1: Pass prescriptive regulations requiring protection of structures from corrosion t very business friendly Costly to enforce compliance Costly to update regs as technology advances Option 2: Provide a financial incentive Business friendly Little enforcement cost Allows implementation to keep pace with advances in technology

7 Request to Congress Invest in the Future: Create a Corrosion Prevention Investment Tax Credit 50% Tax Credit on Corrosion Prevention Strategies Investments Tax Credit to all businesses, in all industries based on new initiatives

8 How a Corrosion Prevention Tax Credit Would Work? Assuming Businesses Reinvest their Corrosion Savings

9 Asset Owner Model: Annual Cost of Corrosion $276,000,000,000 Potential Savings (1/3) 92,000,000,000 Cost to Implement Savings -9,200,000,000 Net Savings $ 82,800,000,000 (30%) US Treasury Model: Jobs created in corrosion technology field 128,800 Jobs created/retained due to reinvestment of tax savings 1,288,000 Annual Value of 1,416,800 new Jobs $56,672,000,000 Additional Tax Revenue (@18% Individual Rate) $ 10,200,960,000 Less 50% Federal Tax Credit for Corrosion Prevention -4,600,000,000 Net Tax Revenue Increase $ 5,600,960,000 US Treasury s Return on Tax Credit 122% }1,416,800

10 How a Corrosion Prevention Tax Credit Would Work? Assuming Savings are Pocketed by Business Owners

11 Asset Owner Model: Annual Cost of Corrosion $276,000,000,000 Potential Savings (1/3) 92,000,000,000 Cost to Implement Savings -9,200,000,000 Net Savings $ 82,800,000,000 (30%) US Treasury Model: Jobs created in corrosion technology field 128,800 Jobs created/retained due to reinvestment of tax savings -0- Annual Value of 128,800 new Corrosion jobs $ 5,152,000,000 Corporate Income (70% of Savings) $ 57,960,000,000 Additional Federal Tax Revenue (34% Corporate Tax Rate) $ 20,633,760,000 Less 50% Federal Tax Credit for Corrosion Prevention -4,600,000,000 Net Tax Revenue Increase $ 16,033,760,000 US Treasury s Return on Tax Credit 349%

12 Private Enterprise The Engine That Drives Our Economy Creates jobs Economic growth Taxes that support public sector (government) Provide contributions to not-for-profit sector Social services Arts & Culture Sports & Recreation

13 Current Congressional Initiative: Private Sector Financial Incentives Corrosion Prevention Investment Tax Credit Bill

14 Corrosion Prevention Act of 2006 H.R The Section will be called SEC 45N. CORROSION PREVENTION AND MITIGATION MEASURES, revision to the 1986 IRS Code

15 Corrosion Prevention Tax Bill Bill Concept Typical Corrosion Prevention Program Elements Engineering/Maintenance 40% 25% Materials/Equipment Application/Implementation 35%

16 Corrosion Prevention Tax Bill Bill Concept A 50% tax credit will be granted for implementation of corrosion prevention strategies listed herein that are applied to new or existing metallic structures or assets permanently located in the US that are: Buried Submerged Concrete-encased Atmospherically exposed

17 Corrosion Prevention Act of 2006 H.R (Introduced 3/9/06) House Sponsors Michael Fitzpatrick (R-8 th PA): Lead Sponsor Al Green (D-9 th TX) Roscoe Bartlett (R-6 th MD) Michael Conaway (R-11 th TX) Ron Paul (R-14 th TX) We need 218 votes in the House All Representatives will be important Bill clearly has bipartisan appeal Shame on anyone who does not support it!

18 Corrosion Prevention Tax Bill Bill Concept To qualify for the tax credit, the corrosion prevention strategy must be conducted by providers who are headquartered in the USA and all components of the corrosion prevention system must be of US origin.

19 Corrosion Prevention Tax Bill Bill Concept Description Protective Coatings Application of protective barriers between the metal and its environment Cathodic Protection An electro-chemical method to prevent a refined metal from returning to its native state (ore or rust) System design Specification and drawings System design Specification and drawings Design Implementation inspection Implementation inspection Performance monitoring Performance monitoring Paint Coatings Anodes Cable Materials Linings Power supplies Primers Test stations Blast aggregate Thermit welding equipment Old coating removal Anode boring Construction Surface preparation Cable/wiring installation Primer application Power supply installation Coating/paint/liner application Resurfacing/grading

20 Corrosion Prevention Tax Bill Bill Concept Description Inhibitors Chemicals that are placed in fluids or in contact with a metal to reduce or eliminate its rate of corrosion Material Selection Selection of a metal that is compatible with the environment in which it will be installed to reduce its rate of corrosion Design System design Specification and drawings Implementation inspection Performance monitoring System design Specification and drawings Implementation inspection Performance monitoring Materials Chemical injection equipment Internal corrosion monitoring equip Chemical inhibitors Corrosion resistant alloys Insulating gaskets/unions Casing seals and insulators Construction Piping/vessel tapping Corrosion coupon/probe installation Gasket/union installation Casing seal/insulator installation

21 Corrosion Prevention Tax Bill Bill Language 1. Tax credit would be equal to 50 percent of qualified corrosion prevention and mitigation (cpm) expenditures

22 Corrosion Prevention Tax Bill Bill Language 2. The term qualified cpm expenditures applies to amounts paid for design, materials, application and installation

23 Corrosion Prevention Tax Bill Bill Language 3. A cpm system or component is qualified if certification is made by someone properly accredited in the technical area of concern

24 Corrosion Prevention Tax Credit Results A Winning Strategy for All US Stakeholders Provides incentives for business to consider corrosion preventive strategies versus find it and fix it mentality Allows U.S. businesses to become more competitive in world market by reducing wasted costs Provides a favorable Federal tax revenue impact to the US Treasury Net tax revenue of >$5.6 billion Return on Tax Credit of >120%

25 Implementing the Tax Act NACE International: The Quality Control Gatekeeper Support Congress & its committees with technical information Develop training program for certifiers Technical pre-qualifications Training course and test for tax credit certifiers Comprehensive guide for tax credit certifiers Maintain listing of qualified tax credit certifiers

26 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

27 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

28 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

29 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

30 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

31 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

32 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

33 Will the asset be in the USA? Tax Credit Qualification Decision Matrix Is the asset made of metal? Is a qualified corrosion prevention method being used? required by law? incremental to that required by law? The investment does not qualify for the tax credit. considered to be standard industry practice? incremental to standard industry practice? provide a minimum 50% asset life extension? provide a minimum 50% asset life extension? improve safety and/or environmental protection? improve safety and/or environmental protection? Determine the incremental investment value. The entire investment qualifies for the tax credit. The incremental investment qualifies for the tax credit.

34 Ensuring Passage of the Corrosion Prevention Tax Act NACE International s Grass Roots Initiative

35 Our Message Annual cost of corrosion $276B Potential Corrosion Prevention Savings $92B Protecting the Environment Our Mission Creating/Retaining 1.5 million jobs PRICELESS

36 Bi Partisan Support Using Old Paradigms Democrats/Liberals Creates/retains jobs Green : Protects environment Supports unions Reduces insurance premiums Accretive to Treasury Republicans/Conservatives Enhances global competitiveness Green : Protects environment Supports small business Reduces liability Accretive to Treasury

37 Corrosion Prevention Tax Bill Next Steps The Bill requires a Gatekeeper to ensure quality of the Tax Credit implementation = NACE Determine a means for NACE to provide Tax Bill specific training and/or certification = Certifier Guide

38 Passing the Bill President Senate 51 Votes House of Representatives 218 Votes

39 Corrosion Prevention Tax Bill A Call for NACE Membership Action! NACE Congressional Blitz Diligently promote benefits of Bill by local members with all Congressmen Letter ( ) writing campaign Personal meetings (individuals) Meet-n-Greets (groups) NACE Legislative Days

40 Corrosion Prevention Tax Bill Challenges We will not be deterred! 1. Distractions in Washington War on terror/iraq; Port Security; Lobbying Reform; 2006 elections 2. GY 2006 Budget Deficit 3. Corrosion lacking sex appeal

41 What this Bill Means to NACE Stakeholders A True Win-Win-Win-Win Scenario! US Structure/Asset Owners Improved bottom line due to tax credits Greater opportunities to compete globally Increased executive management recognition of corrosion US Service Providers Increased project opportunities US Corrosion Professionals Increased job opportunities NACE International Greater recognition of corrosion prevention technologies New members

42 Corrosion Prevention Tax Bill Timeline... A lesson in patience! Initial NACE Tax Bill Strategy Drafted Summer thru Fall 2003 NACE Tax Bill concept tested on Congress and refined Summer 04 thru Spring 05 9/02 Cost of Corrosion Study Delivered to Congress Spring 03 Congressional Affairs Sub Committee Formed 5/05 NACE Legislative Day Bill Drafting May 05 to March 06 Diligent Follow Up Future 3/06 Bill Introduced in House

43 + Good Government + Good Citizenship If we work together, we all win!