Some of these programs are in the form of income tax deductions or credits, exemption from sales tax, or accelerated depreciation. Some are direct grants or low-interest loans. It is possible that your company qualifies for a number of these programs. In some cases, the credits or grants derive from funds that you have already contributed to (i.e., taxes or a charge within your local utility bill). Therefore, you may be getting back your own money. So there is no reason not to pursue multiple incentives if you qualify for activities that will further benefit your company. But don’t wait, as some expire.
Sustainability and Energy Incentive Programs
What types of activities are covered by incentives? They can include lighting upgrades; upgrading your windows; converting to cogeneration; adding more insulation; installing alternative energy sources; using recycled products in your manufacturing; and installation of equipment to reduce air emissions or wastewater discharges.
Among the federal programs is the IRS’s Energy Policy Act (EPAct) of 2005, which provides federal income tax deductions of up to $1.80 per square foot for upgrades of lighting, building envelope, and HVAC. A building owner must demonstrate actions that lead to performance reductions of 50% below a typical energy profile of a building that meets ASHRAE 90.1-2001 standards for the climate zone. EPAct is scheduled to expire on December 31, 2013. There are also tax credits for installing solar energy (PV).
There are a wide variety of incentive programs offered by state and local governments. Thorough research into what is available is important. Not all states offer programs. Many states offer tax benefits, such as credits or treatment of equipment as an expense (and not dealing with depreciation). Many state programs provide direct grant money to a company for investing in an energy upgrade. The company still has to front the funds for the upgrade, but they know that if the installation is successful they will receive a percentage of the investment or a lump sum. It is critical to totally understand the program and what is expected to qualify. Forms need to be completed. In addition, it is preferable to hold meetings to ensure that the expectations of all sides are understood.
Some states offer tax credits and/or sales tax exemptions for the purchase of certain equipment containing a high content of recycled materials. Some offer credits for purchasing advanced pollution control equipment.
Some states offer incentives in the form of tax credits or direct grants for brownfield remediation and development. Such activities, however, must be overseen and approved by the USEPA and/or the state agency.
There are also private companies or NGOs that offer incentive programs, as well. One growing example is that several energy service companies (ESCOs) offer to pay the entire upfront capital cost of a solar electric (PV) system for your roof (if it qualifies) and its maintenance. The new system will supply the electricity you need for your building at a discounted price to pay for the costs they fronted and continued maintenance.
Preparing for Incentives
It cannot be stressed enough that to take full advantage of available incentives one must plan your projects to meet their requirements. Planning is the key and is more likely to succeed compared to “shoehorning” an unplanned project into a program. Be sure you understand the requirements of an incentive program by reading the literature and meet with representatives to ensure a full understanding on both sides. Given the complexities of some of these programs, it is important to involve your Legal and Financial Departments in these reviews and discussions, as well. A joint understanding and joint decision are necessary to gain maximum benefits.
Remember, the best laid plans for energy or other environmental programs do not always succeed. Despite planning, you may not reach that 50% reduction goal of energy reduction necessary to qualify for the EPAct program incentive. Be prepared that you may not receive full benefits. In the UNFCCC CDM program of greenhouse gas (GHG) reductions, 30% of projects do not meet their GHG emission reduction goals. Remember, even an “unsuccessful” project that does not qualify for full incentives can still achieve many financial benefits for a company. But do manage expectations.
Finally, in evaluating the costs of a project, remember to focus on the requirements of the incentive programs. Many require intensive paperwork, as well as monitoring and other “proof” that goals are met. In some cases, goals must be maintained in the longer term, too. Make sure that your calculations of expenditures include long-term recordkeeping and reporting of key data.
But the incentives are there and there is great opportunity for “free”, outside money to perform sustainability and energy projects that will provide long-term benefits you’re your company. CCES can assist you in evaluating programs to benefit you.