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September 7, 2012 Dominick Brook

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1 September 7, 2012 Dominick Brook
Incentives and Policies for Sustainable Business Programs: A Perspective from Ernst & Young September 7, 2012 Dominick Brook

2 Disclaimer Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited and of Ernst & Young Americas operating in the U.S. This presentation is © 2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of U.S. and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are not necessarily those of Ernst & Young LLP.

3 Circular 230 disclaimer Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code (IRC) or applicable state or local tax law provisions. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice.

4 Today’s agenda Relevance of Sustainability to businesses
Business implications Defining sustainability Business drivers Sustainability framework Sustainability incentives Reduce - Energy efficiency Switch – Renewable energy and alternative fuels Innovation - R&D and Advanced Energy Manufacturing Offset – Clean Development Mechanism Traditional incentives Legislative Update and Best Practices

5 Business implications
“ROI is our business imperative. The biggest challenge we face is sustaining growth against the backdrop of environmental conservation and maintaining our company’s reputation.” - Global executive, 2010 Ernst &Young study “Big companies have decided that [corporate sustainability] is a long-term play.” - The World’s Greenest Companies, Newsweek October 2011 Quotes from Newsweek “The World’s Greenest Companies” Rankings based on : environmental footprint (including greenhouse-gas emissions and water use); management (including environmental policies, programs, and initiatives); and disclosure “If governments are hesitating, many of the globe’s big companies missed the memo. Top-ranked companies are approaching green projects with increasing tenacity, even in this weak economy. Corporate sustainability, it seems, is here for the long haul—it makes sense not just for the sake of the planet, but for business. “Big companies have decided that this is a long-term play,” says Thomas Lyon, a professor at the University of Michigan’s Ross School of Business. For corporate executives, what matters is that waste cuts into profits, and that reducing wasted energy, for example, curbs greenhouse-gas emissions while bolstering the bottom line. We face a future in which resources that were once taken for granted—water, land, minerals, fossil fuels—will be limited and costly. Preparing now to succeed in—and even profit from—that difficult future could make all the difference. “We don’t expect a clear-cut policy in the U.S. any time soon,” says Mark Vachon, who leads the Ecomagination program at GE, No. 63 on the U.S. list. “But that doesn’t mean we ought to put our pencils down. In fact, having business lead in this space might be exactly what we should do.”” 5

6 Defining sustainability
This requires the balance of social, economic, and environmental demands — the three pillars of sustainability. The environment pillar is focused on environmental management of air, water and land systems , including greenhouse gas management. The social pillar includes management of issues such as ethical conduct, anti- corruption, labor practices, social justice and community engagement. The economic pillar reflects a need to decouple environmental degradation and economic growth. It also recognizes the value of providing jobs and tax revenue to promote local economies and infrastructure. Sustainability is a philosophy of meeting the needs of the present without compromising the ability of future generations to meet their own needs. Environmental Economic Social Sustainable 6

7 Drivers of corporate response to climate change
Revenue generation Cost reduction Government regulation Expectations of stakeholders Corporate response to climate change New products and services Shorter payback models New business models Innovation investment High energy cost; expected increase in cost Operational efficiencies IT activity Reduced waste Cost of carbon Environmental laws NGO operating guidelines Federal and state climate change programs Regional initiatives Financial reporting Customers Consumers Investors Employees Media The drivers of this response fall into 4 broad buckets. First, companies are trying to figure out how to make money out of the climate change movement. In some cases they are remaking themselves with new products, technologies and services. This is requiring significant capital investment and creation of new markets. Next, companies are concerned about rising energy costs as well as the desire to reduce their green house gas emissions, or their carbon footprint. Government actions both in the form of incentives and mandates are driving behavior. And finally Companies are mindful of the expectations of their stakeholders. Pick up just about any public disclosure of a companies climate change plan and it will likely include some element of these four buckets. Tax and Finance have an important role to play as there will be significant capital expenditures involved in almost all activities. Corporate leadership will have return on investment expectations before the expenditures can be approved. Often the ROI models will not work with out taking into consideration the tax benefits or costs associated with the plan.

8 Mapping incentives issues onto the climate change response
Energy-efficient buildings Energy-efficient plants Research into improved processes Investment in new technologies Resource efficient buildings, plants, infrastructures Energy efficiency in suppliers Energy in transport Recycling Water saving Fuel-efficient distribution Recyclable packaging Research into sustainable products Reduction of resource intensity of supply chain Resource-efficient products Reduce Switch Innovate Offset Green energy supplies Green energy generation ESCO’s JV’s Low-carbon energy sources Training work force Educating customers Home working Transport Behavioral switch Sustainable sourcing of raw materials Water Education Managing stakeholder expectations Climate/sustainability policies Non-financial reports Audit of emissions Clarity/robustness of claims made Carbon management Climate/sustainability policies Non-financial reports Audit of emissions Clarity/robustness of claims made

9 Identifying the triggers of sustainability incentives
Is your company investing in innovative R&D to create “green” products or services in response to market opportunities? Has you company invested in alternative vehicles for its fleet? Has your company invested in renewable energy? Does your company have or plan to install energy efficient property as part of a new building or a retrofit to an existing building (interior lighting, HVAC system, etc.)? Does your company have any LEED certified buildings? Does your company have diesel or gasoline powered vehicles/equipment that are used in an off-highway capacity? Has your company made significant capital expenditures to meet its energy efficiency goals?

10 Today’s agenda Relevance of Sustainability to businesses
Business implications Defining sustainability Business drivers Sustainability framework Sustainability incentives Reduce - Energy efficiency Switch – Renewable energy and alternative fuels Innovation - R&D and Advanced Energy Manufacturing Offset – Clean Development Mechanism Traditional incentives Legislative Update and Best Practices

11 Reduce: Energy Efficiency and LEED
Lighting ($ per lamp or fixture) HVAC system efficiency ($ per ton) Motor efficiency ($ per hp) Appliance purchases (Energy Star) Roofs with reflective coating or added insulation ($ per sq ft) Variable frequency drive ($ per kW)

12 IRC Section 179D deduction - Overview
Federal tax deduction of $0.30 to $1.80 a square foot of the building up to the total basis of the energy-efficient property placed in service Energy-efficient commercial building property includes: Light fixtures and controls, not light bulbs New or replacement HVAC systems and controls New buildings or replacements windows, roofs and doors Property must meet energy efficiency targets (compared to ASHRAE ) and prescriptive requirements Effective 1 January 2006 through 31 December 2013 Obama has proposed revising the incentive as part of the “Better Building Initiative”

13 IRC Section 179D: value and benefit
Property Energy Efficiency (Compared to ASHRAE ) Benefit (per sq. ft.) Lighting (LPD) 25 – 40% LPD reduction $ $0.60 Lighting (Energy Modeling) 20% energy cost reduction $0.60 HVAC/HW Building Envelope 10% energy cost reduction Lighting + HVAC/HW + Envelope 50% energy cost reduction $1.80 Value of 179D 35% ETR Lighting Only HVAC, Building Envelope, Lighting 200,000 s.f building $21,000 - $42,000 $126,000 500,000 sq. ft. building $52,500 - $105,000 $315,000 1,000,000 sq. ft. building $105,000 - $210,000 $630,000 2,000,000 sq. ft. building $210,000 - $420,000 $1,260,000

14 Certification requirements
Energy modeling: Model the building with the minimum requirements of ASHRAE Std then compare to actual installation to calculate % reduction in energy costs Third-party site inspection: After the property has been placed in service Confirming that the building has met, or will meet, the energy-saving targets and prescriptive measures contained in the design plans and specifications Letter of certification: By “an engineer or contractor that is properly licensed in the jurisdiction in which the building is located”

15 IRC Section 179D deduction: government allocation
The 179D tax deduction can be allocated by a government entity to the designer of a government-owned building Government-owned building: Federal, state or local government or a political subdivision May include: public secondary schools; public or state universities buildings; airports; stadiums; arenas; city parking garages; corrections institutions (jails) Designer: Person that creates the technical specifications for installation of energy efficient commercial building property May include: architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building

16 Best building types for 179D
Large Square Foot Buildings WHY – deduction is dependent on square footage Corporate HQ’s, Office Towers etc. Parking garages, warehouses, distribution centers WHY – single light fixture type – large spaces Significant improvement in high-bay lighting since 2001 LEED-certified buildings WHY – Energy Efficient designs

17 IRC Section 179D Deduction – Government Allocation
The 179D tax deduction can be allocated by a government entity to the designer of a government-owned building Government-owned building Federal, State, or local government or a political subdivision May include: public secondary schools; public or state universities buildings; airports; stadiums; arenas; city parking garages; corrections institutions (jails) Designer Person that creates the technical specifications for installation of energy efficient commercial building property May include: architect, engineer, contractor, environmental consultant or energy services provider who creates the technical specifications for a new building or an addition to an existing building

18 State and Utility incentives overview
There are three major types of incentive programs: Prescriptive measures - Basic $30 per light fixture, $20 per occupancy sensor, $100 per ton HVAC Generally there is a menu for pre-determined equipment and amounts Applies to more basic, simple measures - lighting, HVAC, controls Custom Measures - Intermediate Usually covers what the prescriptive programs don’t, similar pay scale Customer must define, measure and validate the energy savings Opportunities for industrial equipment & more creative measures Demand Response/Load Curtailment - Advanced Customer makes a commitment to the utility on an annual basis When the utility calls, the customer is to shed the agreed upon load

19 Dominick through slide 50 by 1:50

20 How to be successful with state and utility incentives
What works Discussions with actual facility managers, plant managers, energy teams and design teams will uncover potential opportunities Layer all available incentives to maximize ROI Start where electric prices are highest in your portfolio Start early – many cash programs require pre-approval Use DSIREUSA.org as a starting point, but verify that programs are still open

21 State and Utility Energy Efficiency Incentives
Illinois - Energy Efficiency Grants The State of Illinois and local governments have appropriated funds for energy efficiency grants for inducing solar energy and/ or wind energy projects. This incentive is negotiated with the state and/ or local government based on a project’s specifications. Illinois - Energy Now An energy efficiency program administered by the State that provides millions of dollars in rebates to public facilities that make large-scale equipment improvements to their electric and natural gas systems. Includes the Public Sector Energy Efficiency Aggregation Program. Indiana - Sustainable & Green Building Incentives Fee waivers and other design incentives for developers that incorporate sustainability goals such as energy and resource efficiency, public transportation, and landscape and site design. Offered in Bloomington and Indianapolis

22 Reduce – LEED Buildings
LEED – Leadership in Energy and Environmental Design LEED provides a framework that project teams can follow to achieve specific metrics Developed as a voluntary, consensus-based standard for high-performance, sustainable buildings…now being used internationally Members of the USGBC, representing all segments of the building industry, developed LEED and continue to contribute to its evolution As of July 2008 there were 63 different incentives at the state and local level for LEED-certified buildings ranging from tax credits and grants to density bonuses and free technical assistance.

23 Green Building (LEED™)
LEED – Leadership in Energy and Environmental Design LEED is a green building certification The LEED rating system is a voluntary, consensus-based national standard for high-performance, sustainable buildings Members of the US Green Building Council (USGBC), representing all segments of the building industry, developed LEED and continue to contribute to its evolution The USGBC is not associated with the federal government and is a non-profit organization

24 LEED for New Construction
LEED-NC is a one-time certification Higher certification levels can be achieved by earning additional points LEED-NC evaluates and recognizes the performance of buildings in 5 accepted green design categories: Sustainable Sites Water Efficiency Energy & Atmosphere Materials & Resources Indoor Air Quality

25 A sample of LEED incentives in the US
Cincinnati, OH – 100% property tax exemption Indianapolis & Marion County, IN – 30% Rebate IA – Tax Credit King County, WA – Grants NY – 10% increase on other incentives OR – Business Energy Tax Credit Il – Partial Funding VA – Separate Class of Taxation NV – Partial Abatement of property tax Monroe County, NY – tax abatement extension Talk on these three: CINCINNATI, OH- LEED CRA Tax Exemption Program Automatic 75% property tax exemption for developments that meet a minimum of LEED Certified for newly constructed or rehabilitated commercial or residential buildings. There is no cap on the maximum market value eligible for abatement for commercial/industrial developments although a minimum of $40,000 in costs is required.  The commercial/industrial and multi-unit residential abatement is up to 15 years for new construction and 12 years for renovation.   The tax abatement is automatic for LEED certified buildings after approval by city council OREGON- Part of Oregon’s Comprehensive Business Energy Tax Credit (BETC), administered by the state Office of Energy, is tied to LEED certification. BETC also offers tax credits for Conservation efforts, Renewable Resoureces, High Performance Homes, Renewable Energy Projects, Transportaion, Alternative Fuels, and Recycling For LEED certified buildings the tax credit is for 35% of eligible project costs, distributed over five years – 10 percent in the first two years, and then 5 percent in the remaining 3 years. There is a pass-through option which allows a project owner to transfer the Business Energy Tax Credit project eligibility to a pass-through partner in exchange for a lump-sum cash payment. Tax Credit must be applied for within 30 days of applying for LEED registration –i.e. before design and construction begin New Mexico – Sustainable building tax credit SB 463, enacted in April 2007, established a personal tax credit and a corporate tax credit for sustainable buildings in New Mexico. The tax credits apply to both commercial and residential buildings. Commercial buildings which have been registered and certified by the US Green Building Council at LEED* Silver or higher for new construction (NC), existing buildings (EB), core and shell (CS), or commercial interiors (CI) are eligible for a tax credit. The amount of the credit varies according to the square footage of the building and the level of certification achieved. For example for a LEED platinum certified building, there is a tax credit of $6.25 psf for the first 10,000sf, $3.25 psf for the next 40,000sf and $2.00 per sf over 50,000sf. Various LEED initiatives including legislation, executive orders, resolutions, ordinances, policies, and incentives are found in: 45 states 384 cities/towns 58 counties 14 federal agencies or departments 17+ public school jurisdictions 39+ institutions of higher education MD – Baltimore, Carroll, Howard & Montgomery Counties Property Tax Credit Southern California Cities – Financial Incentives NM – Sustainable building tax credit Chatham County, GA – Property Tax and County Tax Abatement Anchorage, AK – Permitting Fees Refund SLC, UT – Expedited Plan Reviews Honolulu, HI – property tax abatement Longmont, CO – Fee Rebates Florida Cities – Financial Incentives, Higher Densities Chandler, AZ – LEED Fee Reimbursement Harris County, TX – Partial Tax Abatement El Paso, TX – Grants for Commercial Buildings

26 LEED for New Construction
Density Bonus Expedited permitting Fee Waivers/rebates Grants/tax incentives Utility Rebates Ramon through slide 42 by 1:42

27 LEED for existing buildings (LEED-EB)
LEED has concentrated in new construction but existing buildings certified under LEED-EB have proven to lower operational costs The most important aspect when considering LEED EB is energy efficiency Measured through EPA’s Energy Star Portfolio Manager If a prospective building’s energy efficiency is at top quartile performance, LEED-EB is much easier to achieve and /or a higher LEED level may be pursued Buildings that are already energy efficient may require very little beyond the required documentation, and adoption of policies and procedures to meet LEED-EB requirements Ramon through slide 42 by 1:42

28 Incentives for LEED for Existing Buildings
Incentives available for the retrofit and adoption of policies and procedures in areas of three states: New Mexico (Income Tax Credit) Maryland (Property Tax Credit) Virginia (Reduce Property Tax Rate) Other incentives: Grants Registration and certification fee reimbursement Enhanced market values Higher rents Branding/Marketing Utility Rebates 179D/48

29 Today’s agenda Relevance of Sustainability to businesses
Business implications Defining sustainability Business drivers Sustainability framework Sustainability incentives Reduce - Energy efficiency Switch – Renewable energy and alternative fuels Innovation - R&D and Advanced Energy Manufacturing Offset – Clean Development Mechanism Traditional incentives Legislative Update and Best Practices

30 Switch- Renewable Energy/Alternative Fuels
Any energy resource that is naturally regenerated over a short time scale and derived: Directly from the sun, including solar thermal and photovoltaics Indirectly from the sun including Wind energy and Biomass From other natural movements and mechanisms of the environment, including: Hydroelectric Hydrokintetic power Geothermal From organic waste landfill gas waste-to-energy combustion Renewable energy does not include energy from fossil fuels or inorganic waste Farm Picture

31 Renewable Energy Investment Tax Credit (IRC §48)
Equal to the energy percentage (30% or 10%) of the basis of each energy property placed in service during the tax year 30% Tax credit for: Fuel Cells; Solar Energy; Small and eligible large wind; Closed and open loop biomass and other eligible renewable systems 10% Tax credit for: Geothermal, Micro-turbine, Combined heat and power, and Thermal ground-water energy Under the 2009 Stimulus Bill taxpayer can elect to take an investment tax credit of 30% rather than a production tax credit for wind, geothermal, biomass or hydropower Previously the basis of investment on which credit applied was reduced by other “subsidized energy financing” Under H.R.1, the 2009 Stimulus Bill, this has been eliminated and the credit can be taken on the full investment Open through 2017 IRC §48: Renewable Energy Investment Tax Credit Tax Credit for investments in eligible renewable energy property Equal to the energy percentage (30% or 10%) of the basis of each energy property placed in service during the tax year 30% Credit for: Fuel Cells; Solar Energy; Small and eligible large wind; Closed and open loop biomass and other eligible renewable systems 10% Credit for: Geothermal, Micro-turbine, Combined heat and power, and Thermal ground-water energy Valid on eligible energy property placed in service by December 31, 2016. Changes under the 2009 Stimulus Bill Reduction of the basis of investment on which credit applied by other “subsidized energy financing” was eliminated and credit can now be taken on the full investment Under the 2009 Stimulus Bill, a 1603 grant through the Department of the Treasury can be taken in lieu of the credit

32 ARRA 1603 Grant in lieu of the ITC
Extended by the tax cut extenders act in December through to 12/31/2011 Converts a Section 48 ITC to a cash grant Can qualify if construction begins before 31 December and the property is placed in service before relevant credit deadline Two safe harbors, continual construction, and 5% expended before year end Application due 10/1/2012 PROMPT slide change Mike through Monetization/slide 60 by 2:05

33 Renewable Energy Production Tax Credit (IRC §45)
2.2/1.1¢ per KWh credit for electricity produced by the taxpayer from qualified energy resources at a qualified facility and sold by the taxpayer Qualifying facilities through 31 December 2013 Closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, waste-to-energy and marine renewables Wind placed-in-service date through 31 December 2012 AMT exempt for the first 4 years of the 10 year period Under the 2009 Stimulus Bill the taxpayer can now elect to take an 30% investment tax credit under Section 48 instead of a production tax credit The Production Tax Credit is claimed annually in each of the first ten years of operation of the renewable energy system. The credit will remain open for all wind property placed in service by the end of 2012, and by the end of 2013 for all other eligible renewable property. For companies producing energy sold to an unrelated person or company, the Production Tax Credit provides a per-kilowatt-hour tax credit. This tax credit has also been extended recently and the value of the credit is indexed for inflation. To provide developers with additional flexibility, under the ARRA facilities that were eligible for the Production Tax Credit can instead receive the 30% Investment Tax Credit. Section 45 – Points for focus Determination of facility qualification, based on renewable energy source utilized Limited IRS guidance Qualification based on facts and circumstances Analysis of qualification for upgraded or converted facility Expansion of generating capacity Definition of a qualified facility – integrated facility concept Cost analysis – 80/20 rule for expansions Section 45 vs. Section 48 election PTC vs. ITC NPV of credits based on ability to monetize PTCs are non-refundable, need taxable income Election is irrevocable Evaluation of tax structural issues

34 Tax credit monetization
As long as the US government continues to subsidize renewable energy and climate change through the tax code those companies without large tax liabilities will need to monetize Many tax credits can be monetized as long as the monetization structure is in place prior to credit being generated Tax credit monetization tends to be a complicated process as transactions are not cookie cutter, therefore it works best for transactions with a large amount of credits Expiration of Section 1603 will result in increased activity around tax credit monetization How does one accomplish this? Partnership Flip structure Sale Leaseback structure Master Tenant structure

35 State and Utility Incentives
Vary greatly by state: Corporate tax credits Sales tax exemptions Property tax exemptions Utility rebates/production incentives Grants Loans

36 State Renewable Energy and Alternative Fuel Incentives
Illinois - Solar and Wind Energy Rebate Program Offered by the State of Illinois to encourage investment in smaller scale solar and wind energy systems. The program offers incentives up to 30% of the project cost for business applicants with a maximum rebate of $30,000. Indiana - Renewable Energy Property Tax Exemption Property tax exemption offered on systems that generate energy using solar, wind, hydropower or geothermal resources. Includes entire renewable energy system and affiliated equipment that is unique to the system, including equipment for storage and distribution. Indiana - Sales and Use Tax Exemption for Electrical Generating Equipment Equipment, machinery, and tools used in the production of renewable electricity are exempt from the State’s gross retail tax.

37 Today’s agenda Relevance of Sustainability to businesses
Business implications Defining sustainability Business drivers Sustainability framework Sustainability incentives Reduce - Energy efficiency Switch – Renewable energy and alternative fuels Innovation - R&D and Advanced Energy Manufacturing Offset – Clean Development Mechanism Traditional incentives Legislative Update and Best Practices

38 Innovation – R&D and Advanced Energy Manufacturing

39 Innovation Internal product development Joint development efforts
Alternative energy More efficient products Cleaner products Battery technologies Joint development efforts Contract research LEED certifications Process improvement Reduce emissions, reduce scrap Cleaner manufacturing process/line EPA Superfund program

40 Department of Energy Grant Funding
Provides grants for energy efficiency and renewable energy projects In FY2009, more than $2.2 billion in funding was awarded to businesses, industries, universities and others Funding Opportunity Announcements (FOA) made throughout the year to solicit grant applications for certain projects or technologies Check regularly for opportunities Application periods are typically 60 days or less

41 48C tax credit for advanced energy manufacturing
ARRA created a new allocated 30% ITC for facilities engaged in the manufacture of green products Potential qualifying assets and technologies : Technologies that create energy from renewable resources (sun, wind, etc.) Energy storage technologies (fuel cells, microturbines, etc.) used in electric vehicles Advanced transmission technologies that support renewable generation Renewable fuel-refining or blending technologies Energy conservation technologies (advanced lighting, smart grid) Plug-in electric vehicles and vehicle components (motors, generators) Property to capture and sequester carbon dioxide Other property designed to reduce greenhouse gas emissions

42 Other Innovation Incentives
Additional opportunities around capital expenditure plans R&D Loans and Credits State Energy Program Funding Traditional Incentives – Job creation tax credits, Cap-Ex related incentives, property tax abatements, sales tax abatements PROMPT slide change Mike through Energy Property/slide 50 by 1:55

43 Today’s agenda Relevance of Sustainability to businesses
Business implications Defining sustainability Business drivers Sustainability framework Sustainability incentives Reduce - Energy efficiency Switch – Renewable energy and alternative fuels Innovation - R&D and Advanced Energy Manufacturing Offset – Clean Development Mechanism Traditional incentives Legislative Update and Best Practices

44 Clean Development Mechanism summary
What is the Clean Development Mechanism (CDM)? A mechanism under the Kyoto Protocol that allows developed countries with a GHG reduction target to invest in projects that reduce emissions in developing countries. CDM investments give rise to a project revenue stream via the sale of CERs, or Certified Emission Reduction units from the CDM. Standardized CDM project cycle must be complied with, as well as the requirement for the project to meet the ‘additionality’ concept As of September 2011, there are 6,930 projects in the CDM pipeline, 3,492 of which are registered What is the Clean Development Mechanism (CDM)? CDM is a mechanism under the Kyoto Protocol that allows developed countries with a GHG reduction target to invest in projects that reduce emissions in developing countries. CDM investments give rise to a project revenue stream via the sale of CERs, or Certified Emission Reduction units from the CDM. There is a standardized CDM project cycle that must be complied with, as well as the requirement for the project to meet the ‘additionality’ concept (proof that the project would not have happened anyway) As of September 2011, there are 6,930 projects in the CDM pipeline, 3,492 of which are registered

45 Offset projects – Clean Development Mechanism
Set targets for reducing emissions Classification of signatory countries Kyoto Protocol is the first international treaty in which nations of the world agreed to undertake targets in emission reduction The Protocol recognized the concept of ‘common but differentiated responsibilities’ in reducing emissions Kyoto Protocol Copenhagen Cancun Annex I countries received targets to reduce emissions by 2012 (commitment periods) while Non- annex I countries did not have a target Nations agreed on an average reduction of 5.2% of 1990 levels of emissions of Greenhouse Gases (GHGs) The Protocol proposed flexibility mechanisms to enable participation of both Annex I and Non-annex I countries in jointly reducing emissions globally Three flexibility mechanisms proposed – Clean Development Mechanism (CDM) Joint Implementation (JI) International Emissions Trading (IET) Flexibility Mechanisms to facilitate Low Carbon Growth

46 Clean Development Mechanism procedure: Availing carbon credits
Key CDM process steps are demonstrated in the diagram below UNFCCC / EB Issues CERs Project Identification CDM Documentation Validation by DOE Registration with UNFCCC ERPA Generation of Carbon credits Operation Construction Verification/ Certification by DOE CDM project promoter Buyer of CER Endorsement by DNA CER 1 2 3 implementation CER Transaction Kyoto approvals

47 Today’s agenda Relevance of Sustainability to businesses
Business implications Defining sustainability Business drivers Sustainability framework Sustainability incentives Reduce - Energy efficiency Switch – Renewable energy and alternative fuels Innovation - R&D and Advanced Energy Manufacturing Offset – Clean Development Mechanism Traditional incentives Legislative Update and Best Practices

48 Qualifying Events for Traditional Incentives
Create new business operations Construction/purchase/lease of new facilities Purchase of new machinery/equipment Infrastructure improvements Hiring and training of new employees Expand, realign or relocate existing facilities Construction/purchase/lease of new/expanded facilities Hiring/retention of new/existing employees Training of new/existing employees Maintain existing facilities Retaining existing workforce Hiring due to employee turnover Training of new and existing employees It is possible to apply this template to exiting presentations. Have the latest presentation template open Click on the View tab and select Normal Delete all unwanted slides Click on the Insert tab from the menu bar and select Slides from Files Click on Browse. Navigate to the presentation you wish to update with the new template. Highlight the presentation and click Open Wait for the slides from the presentation to load and click on Insert All. Then click Close Check the inserted slides to ensure that the most appropriate master slide has been used on each slide To change the master applied to a slide select the slide you wish to apply a different master to then click on the Format tab from the menu bar and select Slide Design From the Used in This Presentation section choose the master you wish to apply to the slide and hover over it to reveal a drop-down arrow. Click on the arrow and select Apply to Selected Slides It is important to thoroughly check the presentation to ensure that no further formatting is needed.

49 Traditional Incentives: Opportunities
New business operations Expand, realign or relocate existing facilities Maintain existing facilities Tax Incentives Hiring Incentives Training Benefits Non-Tax Incentives Property Tax Relief “Green” Incentives Sales & Use tax exemptions/refunds Federal and state EZ Credits Federal and state research and development credits Capital investment tax credits Wage rebates, job creation grants and credits, employment related tax incentives WOTC/WtW State point-of-hire credits Hiring and employee screening assistance Training grants for prospective training expenditures Development and implementation of training programs through state agencies Training tax credits (retroactive or prospective) Infrastructure grants/assistance Low cost financing for capital expenditures Utility discounts Waiver of permit fees Expedited permits Free or discounted land/building Negotiate real and personal property tax exemptions Structure Industrial Revenue Bonds (IRBs) for favorable property tax treatment Secure Tax Increment Financing (TIF) arrangements Property tax abatement Energy efficiency/GHG reduction incentives and credits Incentives for LEED-certified buildings §179D deductions R&D and Manu. incentives for green products Incentives for production of green products

50 Today’s agenda Relevance of Sustainability to businesses
Business implications Defining sustainability Business drivers Sustainability framework Sustainability incentives Reduce - Energy efficiency Switch – Renewable energy and alternative fuels Innovation - R&D and Advanced Energy Manufacturing Offset – Clean Development Mechanism Traditional incentives Legislative Update and Best Practices

51 2012 Legislative update Solyndra – new scrutiny on Sustainability-focused incentives With cap and trade less likely in the US, tax incentives to encourage renewable energy/energy efficiency may become more likely Incentives from states declining – more focus on federal incentives Expired Incentives Alt. Fuel Tax Credit – Expired Alt. Fuel Infrastructure Tax Credit – Expired 1603 Grant in Lieu of tax credit Proposals/proposed extensions Obama’s Better Building’s Initiative/179D 48C extension – Introduced in multiple bills in last congress but not based. Obama proposed $5B extension

52 Best Practices Understand what your company’s sustainability goals are and who is accountable for accomplishing them Ensure Tax is talking to Sustainability, Facilities and Operations What is being planned? What is being considered? What would they like to do if ROI/payback period was right? Don’t limit yourself to traditional green incentives, also consider: Property tax abatements, sales/use tax exemptions, EZ benefits, cash grants, DOE grants

53 Best Practices Aggregate green spend with general capital spend
New product lines? System upgrades? Retention incentives? Leverage multiple facilities? Integrate your sustainability strategy at all levels across the organization Places company at a competitive advantage Better able to: Identify relevant incentives, grants and subsidies Develop an environmental sustainability platform that reflects broader business goals Increase profits by improving the ROI and reducing the investment payback period

54 Best Practices Integrate Identify Implement
With other departments within the organization in order to … Sustainability initiatives and expenditures that trigger incentives ... Process to secure tax credits and other related incentives

55 Questions Answer any questions participants may have about the breakout subject matter just discussed. Parking lot any questions you can’t answer today and get back to them with the answer.

56 The presenters would like to thank you for your participation and feedback!
Dominick Brook Columbus, Ohio


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