Global

Details

  • Service: Tax
  • Type: Survey report
  • Date: 4/25/2013

Energy efficiency 

Just over half (11) of the countries analyzed for the Index have tax incentives in place to promote energy efficiency in business. (Note that incentives specific to green vehicles
or green buildings are covered separately in those sections).
ENERGY EFFICIENCY
Netherlands 1
Germany, Singapore 2
China, Russia, South Africa, US 4

Source: The KPMG Green Tax Index, 2013.


The bulk of these incentives are enhanced capital allowances or accelerated depreciation to encourage the purchase of energy efficient equipment.


Evidence on the success of such initiatives is sparse but it has been reported, for example, that the Dutch Energy Investment Allowance (EIA) scheme helped to increase business investment in energy efficiency by 45 percent in 2012 over the previous year.1


Other approaches, taken by Germany and Russia among others, involve exemptions from other taxes (such as property or energy taxes) on the basis of energy efficiency performance. South Africa has made energy efficiency a key criterion for potentially generous tax allowances for major manufacturing projects under its Section 121 Tax Allowance Incentive.


Encouraging industry and consumers to use energy more efficiently is widely seen as the first policy choice for governments to ensure the security of supply, protect businesses and consumers against rising costs, support sustainable economic growth and reduce contributions to climate change.


This is because energy efficiency is inexpensive and easily scalable when compared with more costly approaches such as the development of large-scale renewable power generation.


A report by the United Nations Foundation found that if the G8 and five major emerging economies were to double their rate of energy efficiency improvement, energy demand in each of the G8 countries would be reduced by 20 percent by 2030, a reduction equivalent to the energy produced by 2,000 coal-fired power plants.2




Netherlands

VAMIL (or the Netherland’s Accelerated Depreciation of Environmental Investments Measure) provides accelerated depreciation and deductions on qualifying energy efficient assets. Depreciation of up to 75 percent of the investment costs is available and maximum investment costs are 25 million euro (EUR) per asset (USD32 million). In addition, the EIA provides a deduction of 41.5 percent of investment costs in energy efficient and renewable energy equipment resulting in a net benefit of around 10 percent of the total investment.


It was reported in July 2012 that the EIA had helped to significantly reduce energy consumption and and carbon dioxide (CO2) emissions in the Netherlands and had encouraged Dutch companies to invest around EUR1.5 billion (USD1.8 billion) in energy efficiency in 2011, an increase of 45 percent on the previous year.3


Companies in the Netherlands can also apply for a deduction of up to 36 percent of investments in energy efficient equipment under the environmental investment allowance “Milieu-investeringsaftrek” known as MIA. The maximum investment costs that are taken into account are EUR25 million (USD32million) per qualifying asset and assets granted a MIA deduction must be retained for at least 5 years. The EIA and the MIA cannot be applied simultaneously to the same assets, however assets can qualify simultaneously for VAMIL and MIA.


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Germany

In Germany there are taxes on the use of electricity (StromSteuerGesetz) and fuels (EnergieSteuergesetz). Until 2012, energy intensive sectors were exempted from those taxes or benefited from reduced rates. From 2013, companies in these sectors must have an environmental or energy management system in place to benefit from the reduced electricity tax rates. Additionally, the sector as a whole must achieve an annual energy efficiency improvement of 1.3 percent or they will pay more electricity tax.


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Singapore

Singapore provides a 100 percent capital allowance for approved energy saving equipment and technology.


Singapore also has an Investment Allowance (IA) scheme which provides further allowances of up to 100 percent on costs of approved energy efficient plant and machinery, in addition to standard or accelerated capital allowance claims.


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China

Enterprises that purchase and use qualified energy saving equipment can apply for a tax deduction of 10 percent of the amount invested. If the deduction is not utilized, it can be carried forward for 5 years. China also provides a custom duty and value-added tax (VAT) exemption for certain imported energy efficient equipment. China is also supporting the development of an energy services sector in the country by providing attractive tax incentives for energy services companies (ESCOs) and energy users.


For example, a qualified ESCO taking part in an energy performance contracting (EPC) project is eligible for a tax exemption in the first 3 years and a 50 percent tax reduction (an effective rate of 12.5 percent) over the following 3 years. In addition, ESCOs can claim exemption from VAT on the transfer of assets to clients at the end of a project, and assets can be transferred as if fully depreciated for corporate income tax purposes.


Similarly, energy users in EPC projects can deduct reasonable expenses for corporate income tax purposes including service fees and the cost of assets.


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Russia

Russian taxpayers are entitled to a 3-year exemption on corporate property tax for newly introduced energy efficient assets such as air conditioners and elevators. The Russian government also provides a capital allowance for approved energy efficient fixed assets for corporate profits tax purposes. The capital allowance amount can be doubled for certain assets. Investments in energy efficient equipment also qualify for accelerated depreciation at twice the standard rate for profits tax purposes.


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South Africa

South Africa’s Section 121 Tax Allowance Incentive is designed to encourage the development of major manufacturing projects in the country and offers support for both capital investment and training. While not specific to energy efficiency, this tax allowance is directly relevant because energy efficiency improvements are one of the key criteria on which projects are assessed (due in part to the current and future energy supply constraints the country faces). To qualify under this criterion projects must demonstrate a minimum 10 percent energy saving sustained for a minimum of 4 years. The incentive offers a tax allowance of between 35 percent and 100 percent up to a maximum of ZAR900 million (USD97 million) for greenfield projects with 'preferred' status.


Some 13 projects have been approved (at the time of writing) under Section 121 with a total investment value of approximately ZAR22 billion (USD2.4 billion).


South Africa has also announced, but (at the time of writing) has not yet put into effect, an Energy Efficiency Savings Tax Allowance (Section 12L, Income Tax Act) which proposes a tax deduction based on the amount of energy saved by the taxpayer in the year of assessment. The deduction is proposed to be calculated at ZAR0.45 (USD0.05) per kilowatt hour (or equivalent) of energy saved. The date of introduction is not yet known but it is widely expected to be 2015.


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US

Manufacturers of energy efficient residential appliances, such as dishwashers and refrigerators, are provided with a tax credit. The credit is calculated based on the type of appliance manufactured and its efficiency performance. For example, tax credits of up to USD75 per unit are provided for dishwashers, up to USD225 per unit for clothes washers, and up to USD200 for refrigerators. The maximum credit amount is USD25million per taxpayer. This incentive, which began in 2005, is scheduled to expire on 13 December 2013.


Other incentives discussed in other sections of this report include tax deductions for the installation of energy efficient lighting and heating, ventilation and air conditioning (HVAC) systems in commercial buildings (see Green buildings).


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Other energy efficiency incentives

The UK offers a 100 percent first year allowance for specified energy saving plant and machinery. Loss-making companies can opt for an alternative 19 percent tax cash credit up to a maximum of 250,000 United Kingdom pounds (GBP) (USD380,000).


India offers accelerated depreciation at the rate of 80 percent on a long list of energy savings and renewable energy devices, including but not limited to boilers, furnaces and heat pumps.


Similarly, Ireland provides accelerated capital allowances of 100 percent in the year of expenditure for the purchase of a wide range of energy efficient equipment including lighting, controls, HVAC and building energy management systems.


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Non-tax energy efficiency incentives

Many governments also drive corporate energy efficiency through non-tax incentives including grants, subsidies and loans.


Australia has committed substantial sums to such programs including approximately 800 million Australian dollars (AUD) (USD837million) to its Clean Technology Investment Program, which provides grants to help Australian manufacturers invest in energy efficient capital equipment and low emission processes and products. Access to grant funding is competitive based on the energy savings to be made and other criteria.


Australia has also committed approximately AUD200 million (USD210 million) to a similar energy efficiency grants program specific to the food and foundry industries, and a further AUD70 million (USD73 million) to grants to help the coal mining industry implement energy saving and carbon abatement technologies.


In addition, the Coal Sector Jobs Package (CSJP) will provide approximately AUD1.25 billion (USD1.33 billion) over 6 years to the most emissions-intensive or 'gassy' coal mines to reduce fugitive emissions through the exploration and implementation of available abatement technologies


China provides subsidies through central and provincial government agencies respectively. The standard rate of subsidies at the central level is 240 Chinese yuan renminbi (CNY) (USD39) per ton of standard coal saved and no less than CNY60 (USD10) per ton of coal saved at the provincial level. As of April 2013 there were over 2,300 qualified ESCOs in China. These companies can apply for financial subsidies on energy management contracts entered into on or after 1 January 2012. However, such financial subsidies should be taxable with an ESCO for corporate income tax purposes.


Singapore provides funding for up to 20 percent of qualifying costs, capped at 4 million Singapore dollars (SGD) (USD3.2 million) per project, through its Grants for Energy Efficient Technologies (GREET) program.


In Finland a new energy efficiency grants program begins in 2013 to replace the expired Energy Aid program. Typically, the amount of funding provided is 15-25 percent of the total project.


In Belgium, regional energy efficiency subsidies of up to 50 percent of project costs are offered to commercial and industrial organizations.


Spain is currently designing national and regional measures to help the country achieve its EU obligation of a 20 percent reduction in energy consumption by 2020. Grant funding of up to 40 percent of project costs and a soft loans program are expected.


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1 http://www.tax-news.com/news/Dutch_Investment_Tax_Boosts_Renewable_Energy____56469.html. Accessed 21 March 2013.

2 Realizing the Potential for Energy Efficiency. United Nations Foundation, 2007.

3 http://www.tax-news.com/news/Dutch_Investment_Tax_Boosts_Renewable_Energy____56469.html.

 

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