Experiences with tax relief for energy efficient equipment for industry Anuschka Hilke and Lisa Ryan Energy Efficiency Unit, InternaAonal Energy Agency ECEEE Industry Summer Study OECD/IEA 2010
International Energy Agency Members Australia (1979) Austria Belgium Canada Czech Republic (2001) Denmark Finland (1992) France (1992) Germany Greece (1977) Hungary (1997) Ireland Italy (1978) Japan Korea (2002) Luxembourg Norway participates in the Agency under a special Agreement Slovak Republic (2007) Interna2onal Energy Agency Member Countries The Netherlands Poland (2008) Spain New Zealand (1977) Portugal (1981) Sweden Switzerland Turkey (1981) United Kingdom United States
Economic instruments for energy efficiency Fiscal instruments Financial measures Market-based instruments Direct investment Tax relief Loans Emissions trading schemes Public procurement rules Taxes Grants White certificate schemes Public infrastructure User charges RD&D investment
Economic instruments for EE in industry, transport and buildings Industry Tax relief Audit support CO 2 emissions trading Energy management support R&D incentives Energy prices 3 rd party finance and ESCOs Transport Vehicle tax incentives Advanced vehicle subsidies Fuel taxes User charges Infrastructure investment CO 2 emissions trading Buildings Grants for EE equipment Loans and grants for refurbishment Direct investment in social housing 3 rd party finance and ESCOs Tax relief Energy prices
Defining tax relief n Tax relief are used to provide an economic incenave for investments in energy- efficient acaviaes by granang special fiscal treatment for the purchase of energy efficient products and technologies n Types of tax relief : l Tax credits or deducaons l Tax reducaons or rebates l Accelerated depreciaaon l Tax or customs exempaon n Paper focus: l Commercial equipment (industry and services) OECD countries with fiscal incenaves for energy efficient equipment Source: World Energy Council, 2008
Economic evaluaaon matrix Category Criteria Indicators Uptake of programme (units product) Environmental effec2veness Economic efficiency (public part of investment) Other criteria Impact on market Energy savings Rebound effect Free- ridership Costs to the public budget Policy interac2on Process features Market distor2on Level of awareness/influence (%) Sales of qualifying products (units product) Gross energy saved (kwh or toe) Gross CO 2 emissions (tco2) Increase in sales of energy using equipment (%) Increase in use of energy efficient technologies (%) Share of tax incen2ves to purchasers who would have bought the energy efficient equipment anyway (%) Mul2plier effects (%) Value of awarded tax incen2ves Administra2ve costs ( ) Total costs ( ) Cost- effec2veness = total costs/energy saved ( /kwh) Qualita2ve analysis of policies Ease of administra2on Transac2on and administra2on costs ( ) Price changes ( )
Industry n Tax relief programmes for industrial equipment idenafied in 10 IEA countries l data received for 6 countries n Challenges for evaluaaon: l Data availability is limited l Very few evalua2ons to date Country Name of Programme Incen=ve details BELGIUM CANADA FRANCE IRELAND NETHERLANDS UNITED KINGDOM Tax deduc)on for energy saving investments Accelerated Capital Cost Allowance for Efficient and Renewable Energy Genera)on Amor)sa)on Law for Energy Saving Equipment Accelerated Capital Cost Allowance Scheme Energy investment Allowance (EIA) Enhanced Capital Cost Allowance Scheme Tax relief 15.5% of investment cost deduc2ble Accelerated DepreciaAon Between 30% - 50% write off per year Accelerated DepreciaAon 100% write off in the first year of purchase Accelerated DepreciaAon 100% write- off in the first year of purchase Tax relief 44% of investment cost deduc2ble from profits Accelerated DepreciaAon 100% write- off in the first year of purchase Dates of programme 1983 - ongoing 1996- ongoing 1991 - ongoing Oct 2008- Dec 2012 1997 - ongoing 2001 - ongoing
The Netherlands: Energy Investment Allowance (EIA) n Industry accountable for 32% of final energy consumpaon in 2007 n EIA introduced 1997 n Tax deducaon 44% of costs of eligible equipment from profits in calendar year n Investment threshold 450, cap 115 million n Eligible equipment on Energy Technology List: l Corporate buildings l Processes l CHP l Transport Updated annually! l Energy advice
UK: Enhanced Capital Allowance Scheme (ECA) n 35% UK GHG emissions from power and heavy industry (2008) n ECA introduced 2001 n 100% first year capital allowance deducable from profits for purpose of tax n No threshold or cap n Energy Technology List includes 15,000 products n Reviewed annually n Policy interacaon: ETS, climate change levy/ agreements, Carbon ReducAon Commitment
Ireland: Accelerated Capital Allowance Scheme (ACA) n Industry: 18% of final energy consumpaon (2009) n ACA introduced 2008 n 100% write- off of cost of eligible equipment n ACA Specified List includes top 10-15% of energy- efficient products n Updated 4 Ames/year n Online process, first evaluaaon posiave n Policy interacaon : ETS, Large Industry Energy Network, Sustainable Energy Incubator Programme, Irish Energy Management Standard
Results of evaluaaon of commercial equipment programmes 3 case studies n EffecAveness l Gross energy saved: 0.5 1.1% total energy consumpaon l Rebound effect: No informaaon l Free- ridership: 25 70% n Efficiency (public investment) l Total costs: 1 67 million annually l Net cost- effecaveness: 0.002 0.036 per kwh saved n Policy interacaon l Yes, with ETS and naaonal voluntary agreements n Process l Governance issues mulaple agencies administering
Key messages n Ligle data available on amount of tax relief provided for many countries sufficient data to analyse only 3 out of10 countries ligle evaluaaon available. n EffecAveness stems from signal tax relief sends to CFOs and technology list with easy informaaon rather than amount of subsidy. n EsAmated net cost efficiency for these programmes between EUR net EUR 0.002 0.036 per kwh saved, well below average electricity prices in all three countries. n PotenAal mulaplier effect but evidence of free- ridership average at 50%. n In all cases the programme is interacang with other policies such as emissions trading schemes and naaonal voluntary agreements.
Next steps n Further analysis in industrial sector combining tax incenaves with energy management policies n Economic instruments analysis for energy efficiency across all sectors n PublicaAon on mobilising investment for low energy buildings l EffecAveness of economic instruments l Sources of public finance for energy efficiency l CollecAon of case studies l Workshop results from March 2012 n PublicaAon on passenger car tax incenaves
Discussion and inputs welcome! Contact: Anuschka.hilke@iea.org Lisa.ryan@iea.org