Ohio Tax Energy & Carbon Taxes the Next Value-Added Tax (VAT)? - - PDF document

26th Annual

Tuesday & Wednesday, January 24‐25, 2017

Hya Regency Columbus, Columbus, Ohio

Ohio Tax

Workshop Y

Energy & Carbon Taxes … the Next Value-Added Tax (VAT)?

Tuesday, January 24, 2017 4:15 p.m. to 5:15 p.m.

Biographical Information

Dominick Brook, U.S. Leader – Global Sustainability Tax Services Ernst & Young LLP, 800 Yard Street, Suite 200, Grandview, Ohio 43212 Dominick.Brook@ey.com Office: +1 614-232-7376 Cell: +1 740-707-7955 Dominick Brook is a Senior Manager and leads Ernst & Young LLP’s Global Sustainability Tax Practice in the US. He focuses on analyzing and improving the ROI for sustainability strategies, including renewable energy investments, energy efficiency improvements, recycling initiatives, advanced manufacturing and LEED-certified buildings, in three key areas:  Sustainability related incentives – Working with clients to evaluate their sustainability strategies by taking into account tax impacts and available incentives, Dominick’s team focuses on the identification and implementation of business incentives and tax credits at the federal, state and local level.  Global environmental and energy taxes – Connecting with EY’s global network, Dominick assists clients in managing their environmental and energy tax burden, and identifying potential tax reliefs based on their energy and sustainability strategies.  Global carbon regimes – with the expansion of emission trading scheme and carbon taxes from the EU to China, and California to Korea, Dominick works with clients to analyze the risks associated with these regimes, and potential mitigation strategies. Dominick also has experience with other related federal tax credits and grants, including New Markets Tax Credits, Advanced Energy Manufacturing Tax Credits, and Department of Energy grants. Prior to joining the firm, Dominick led the expansion of economic development services at Ohio University’s Voinovich School for Leadership and Public Affairs. He also served as an Adjunct Instructor of economics during his time at Ohio University. Chadwick I. Smith, Executive Director, Ohio Air Quality Development Authority 50 W. Broad Street, Suite 1718, Columbus, OH 43215 chad.smith@aqda.state.oh.us 614.224.3383 Fax: 614.752.9188 Chadwick Smith serves as the executive director of the Ohio Air Quality Development Authority, a non-regulatory government agency created to help Ohio businesses comply with clean air

• regulations. Since its creation in 1970, the Authority has provided technical and financial help to

hundreds of large and small Ohio businesses, awarding more than $8 billion to finance air quality

• projects. Smith previously served in various roles for the Ohio Department of Development,

worked in the utility industry in Japan and as a meteorologist in the US Navy.

Page 1

Corporate Carbon Forum 2016

Ohio Tax Conference

• Energy & Carbon Taxes

The Next Value-Added Tax (VAT)?

Page 2

Non-reliance disclosure

► This presentation is only intended to provide a general outline of the

subjects covered and to form the basis for future discussions. It should not be viewed as an opinion, nor should it be used in place of professional

• advice. Any analysis contained herein is preliminary and is based upon

numerous factual assumptions. As such, it should not be regarded as comprehensive, nor should it be used in place of professional advice.

► The information in this presentation is solely for your benefit and may not be

relied upon by any other person or entity; we have no responsibility to anyone in respect of the information contained herein.

Page 3

Agenda

►Corporate response to climate change ►How can a sustainable business environment be

fostered?

►Ohio Air Quality Development Authority Programs ►The carrot: sustainability incentives ►The stick: energy and carbon taxes ►Questions

Page 4

Corporate response to climate change

Page 5

Corporate sustainability headlines

Why ExxonMobil is Supporting a Carbon Tax Now

Fortune (10 July 2016)

JetBlue Makes Biofuels Deal to Curtail Greenhouse Gases

The New York Times (19 September 2016)

Starbucks Raises $500 Million With Its First Sustainability Bond

Bloomberg (16 May 2016)

How Dell Saved $39.5 Million, Cut Carbon Pollution via Telecommuting

Environmental Leader (17 June 2016)

Tesla and SolarCity Agree to $2.6 Billion Deal

The Wall Street Journal (1 August 2016)

Time Magazine, January 1976 Advertisement was actually pro-coal Called for “national commitment to coal” to end dependence on foreign oil “Its elementary even for an 8th grader”

Same issue, January 1976 ‘Millions of jobs…,no other energy in large enough quantities, billions ready to invest…” “There is no alternative to natural gas”

Page 8

Companies using internal price of carbon

517

Already using internal carbon pricing

732

Plan to implement an internal carbon price

25% increase from 2015

Page 9

Drivers of corporate response to climate change

Revenue generation Cost reduction Government regulation Expectations of shareholders Corporate response to climate change

Page 10

How can a sustainable business environment be fostered?

Page 11

Ohio Air Quality Development Authority

Ohio Air Quality Development Authority (OAQDA)

• Since 1970, OAQDA helps large and small Ohio businesses and

government agencies invest in cleaner energy and environmental regulatory compliance through loans, grants and tax exempt financing for equipment and construction.

• Pre-date the Ohio EPA
• Five member board appointed by the Governor
• Non-regulatory, financing agency
• Issued over $8 billion in bonds since 1970

Project Development and Finance

OAQDA provides financing via conduit bonds for a broad range of

• projects. All OAQDA financing instruments are conduit bonds that:
• May pay interest that is exempt or from federal income tax if the

bonds qualify under the IRC; or may pay taxable interest

• Finance projects that enjoy a 100 percent exemption for the

term of the financing from real property, sales and use taxes and assessments

• Are sold based on the credit provided by the benefiting party
• Need to identify the revenue sources that cover principal and

interest payments OAQDA bonds do not represent the faith and credit of the State of Ohio; all repayment responsibility rests with the financed project.

Project Development and Finance

Qualifying projects include those that address:

• Air contaminants
• Solid waste
• Ethanol or other bio-fuel facilities
• Alternative Fuel infrastructure
• Energy efficiency or conservation measures
• Various advanced energy technologies, including but not limited to wind,

solar, geothermal, biomass

• Combined cycle, cogeneration, Conversion of Coal fired plants to natural gas
• New natural gas plants

Project Development and Finance

OAQDA financing support has assisted projects ranging from $14,000 to $350 million. Some examples include:

• $5 million in OAQDA financing of a broad range of energy system retrofits,

to be installed at the Ohio Reformatory for Women at Marysville in Union County;

• $29 million for Ohio University to install a comprehensive energy efficiency

and conservation overhaul of 72 buildings at its main campus in Athens;

• $55 million to help Andersons Marathon Ethanol in Darke County acquire,

build, install and equip air quality facilities; and

• $241 million for FirstEnergy Generation Corporation to refinance bonds

previously authorized by OAQDA for air quality facilities at plants in eight Ohio counties.

Clean Air Resource Center (CARC)

OAQDA provides financing via conduit bonds for small businesses that are installing equipment to comply with EPA

• regulations. CARC program provides

assistance:

• Are based on a credit analysis of the

benefiting party

• OAQDA pays all fees and closing

costs

• OAQDA pays 30% payment of

principal to lender after equipment has been installed and operational for 6 months

Clean Air Resource Center (CARC)

Harden Auto Body of South Euclid utilized financing thru the OAQDA in the amount of $176,500 for the purchase of two new paint booths that will utilize cleaner water-based

• products. The new booths will help

reduce the company’s energy consumption, cut air emissions and increase productivity.

Clean Air Resource Center (CARC)

Llanfair Body Shop of Cincinnati utilized financing through OAQDA in the amount of $65,000 for the purchase of a new downdraft paint

• booth. OAQDA also awarded a grant

for closing costs and to buy down the loan principal in the amount of $18,345. The new booth will enable them to better utilize cleaner water- based products, and will also help reduce the company’s energy consumption, cut air emissions and increase their productivity.

Clean Air Resource Center (CARC)

Schade’s Auto Body, of Brunswick, financed the purchase of three new paint cabins, a paint mixing room and the ability to utilize two paint prep stations. Project cost was $280,000 and financed through OAQDA. OAQDA also provided a grant to cover closing costs and buy down the loan principal in the amount of $30,000. The new booth and other equipment will enable them to better utilize non VOC water-based products, and will also help reduce their energy use, cut air emissions and decrease product cure time.

Energy Efficiency

• OAQDA helps businesses, both

new and old, install energy efficient equipment and processes.

• A number of businesses have

taken advantage of our financing, including the 21c Museum Hotel in Cincinnati.

University of Akron

The University utilized OAQDA financing to upgrade energy equipment in 39 buildings across

• campus. The annual guaranteed

energy and operational savings will exceed $6 million and projected annual greenhouse gas emission reductions are anticipated to be more than 30.9 million tons of carbon dioxide.

Rumpke Recycling Facility

• OAQDA financed as federally tax-

exempt a recycling facility in the amount of $32 million in Air Quality Development Bonds for Rumpke Consolidated Companies, Inc.

Ohio Air Quality Development Authority partnership

• The OAQDA can partner with any Federal and State existing programs to

help reduce Ohio’s emissions

• Will add additional benefit to projects, such as exempting, where

applicable, the investment from potential sales and property tax liability.

Page 24

Carrot v. Stick

Page 25

The Carrot

Page 26

The carrot: sustainability incentives

Investing in renewable and alternative energy Manufacturing ‘’green" products/ creating ‘’green’’ jobs Making energy efficient retrofits and improvements to existing buildings Recycling waste product/ use of recycled material Reducing emissions from fleet Construction of new energy efficient buildings Investing in alternative fuel vehicles/ infrastructure Investing in energy efficient process equipment

Reduce Switch Innovate

Page 27

Sustainability incentives: menu of opportunities

►Ensuring greatest bang for the buck

► Competitive programs

►Ensuring projects are completed

► Clawbacks ► Reimbursements

►Leverage federal programs

► Piggyback off federal tax credits and deductions ► Leverage federal evaluation criteria

►Leverage federal dollars

Page 28

The Stick

Page 29

Energy Taxes

Page 30

Global Energy and Environmental Taxes: Overview

► Global energy, carbon and environmental taxes are becoming increasingly

relevant as more businesses establish sophisticated energy management and sustainability strategies and as respective tax regimes are continuously developed by governments.

► As companies incorporate sustainability strategies into their business

planning, they also need to factor the growing role of these taxes, resource efficiency and low-carbon activity incentives into their thinking and modeling when making investment and operational decisions.

Page 31

Global Energy and Environmental Taxes: Importance

► Business Drivers

► Reduce the cost of operations by ensuring energy and

environmental taxes are minimized, strategies are adapted, and reliefs are identified and implemented

► Improve ROI of capital investments by identifying and securing

sustainability-related incentives, and minimizing the impact of energy and environments

► Generate revenue by identifying refund opportunities for already

existing operations, strategies and investments

► Mitigate risk from audit of energy and environmental taxes by

ensuring all compliance and reporting requirements are met

Page 32

Energy Taxes

► 5,600 Environmental and Energy Taxes Globally

► 1,600 potential relief opportunities

► Tax on consumption of energy

► Electricity, Natural Gas, Gas Oil, LPG, Kerosene, etc.

► Likely increase in energy tax burden

► Increased CO2 reduction commitments under COP21 ► New carbon taxes being introduced globally at the national and

sub-national level

Page 33

Energy Taxes

► Reliefs/exemptions available against EETs: ► Certain industry sectors ► Specific activities/Process ► Energy efficiency improvements ► Energy management Certification ► Combined Heat and Power (Cogeneration) facilities ► Energy Intensive Industries ► Renewable Energy Usage

Page 34

Carbon regimes

Page 35

Cap and trade

Government of Quebec

Page 36

Carbon tax

Page 37

Carbon regimes in the US and Canada

Page 38

Do carbon taxes work?

• 20
• 15
• 10
• 5

5

British Columbia Rest of Canada

+3.5%

• 6.1%
• 16.0%

+3.0%

GHG emissions Fuel consumption

Page 39

Carbon pricing: menu of opportunities

► Cap and trade vs. carbon tax

► Price certainty vs. emission certainty

► Winners and losers

► Manufacturing ► Low-income families

► How to use the revenue generated

► Invest in sustainability ► Revenue neutrality

► Challenges

► Resistance to new tax ► Potential for increased cost for business

Page 40

Q&A