Promoting Green Power in Canada - Centre for Human Settlements

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Promoting Green Power in Canada Pollution ProbeBox 4.8 - Tax Credit or Investment Grant?Whereas tax credits and investment grants can have the same financial effect, they arenot completely equal. The following reasons suggest that a fixed percentage subsidy ispreferred over tax credits [JLS 2001, p. 340]:1. Tax credits tend to favour the wealthy, whereas grants treat everyone alike. InGermany, many of the well-to-do started investing in wind technology simply becauseof the huge tax savings, rather than to support wind on its own merits. In California,wind became associated with tax loopholes, hurting the technology in the short term.2. Grants lower the cost of the equipment in the eyes of the purchaser.3. Grants can be obtained at any time of the year, encouraging an even distribution ofinvestment over the months. Tax credits can only be obtained at the end of the fiscalyear, which has led to an accumulation of project activity during those periods in Germany.4. Grants can be adjusted more easily. If other benefits reduce the investment costbeyond what is intended to maintain caution on the side of the investor, and to makesure projects actually succeed and produce electricity, it is easier to downgrade ordeny a grant than to change tax provisions to correct a “double-dipping” situation.5. Some plants in California were of inferior quality or were never started up, butinvestors were still able to recover the tax credits. Grants will avoid this as theyencourage purchase of the best technology and actual operation of the equipmentmore than tax exemptions do. Grants can also be split, paying out part of the sum inadvance and part when the plant starts operating. This avoids giving out money forinvestments in machinery that is later abandoned and never gets to completion or tothe operation stage.4.5.3 Carbon and Energy TaxesIn Europe, environmental tax initiatives areincreasingly implemented in order to reducegreenhouse gas emissions (see Table 4.10).The taxes are used as a way of internalizingthe environmental cost of fossil fuel-basedenergy production. Taxes are tied to actualcarbon dioxide emissions or to the energycontent of the fuel, but also target otheremissions, such as SO 2or NOx. Renewablepower producers benefit through exemptionsor refunds from the taxes, or by beingsubsidized by revenue raised from the taxes[EEA 2001, p. 62]. In Canada, a carbon taxwas recommended by the Ontario SelectCommittee on Alternative Fuel Sources, tobe introduced by 2005 [SCAFS 2002, p. 15].CO 2taxes have been implemented inDenmark, Finland and Sweden. TheNetherlands, Germany and Norway haverevenue-neutral taxes, offsetting incometaxes or other general taxes. Norway hasestimated that CO 2emissions have droppedby 3–4% in response to a tax that increasedthe cost of heating oil by 15% and petrol by10% [RAP 2001, p. 21]. Norway also reducedthe electricity tax for renewable power to50% of the normal tariff [NREL 2002, p. 53].The Swedish carbon dioxide and energytaxes, exempting biomass, have helped theexpansion of biomass district heating andbiomass combined heat and power, makingother options, in particular coal-basedoptions, more expensive [EEA 2001, p. 62].In Sweden, the residential sector has to payan equivalent of 2.9¢CDN/kWh forconventional electricity, and wind energy88
Promoting Green Power in Canada Pollution ProbeTable 4.10 — Energy taxation in various EU countries [Haas 2001, p. 24]DenmarkFinlandCarbon-based-, sulphur- and energy-taxation: Existing renewable powerplants (wind, biomass, biogas) are exempt from the CO 2taxation(€0,013/kWh).Carbon-based environmental tax in force since 1990: The tax is refundedto energy producers using wood-based fuels, wind- and small-scalehydro power.Germany 1999 Ecological Tax Reform: Energy tax (€0,01/kWh, increasing) —revenues of taxing energy sources are being used for a renewable powersupport program.SwedenCarbon-based-, sulphur- and energy-taxation: Small-scale renewablesbased electricity production is favoured by lower or no energy taxation.Biomass (incl. waste) is not levied with CO 2taxation. Biofuels are exemptfrom sulphur taxation.The Users of green electricity are exempted from paying the energy tax (€0,06/Netherlands kWh). Producers of green electricity receive a production incentive fromthe energy tax (€0,02/kWh) for electricity — similar rates for producers ofbiogas and for heat from biomass-CHP).UnitedKingdomClimate Change Levy (CCL): The new tax is to be levied on businesscustomers, in effect from April 2001. Renewable generation is exempt.receives a subsidy for the same amount. As aresult, green power products are offered onthe market at prices equal to, or slightlyhigher than (max. 1¢CDN/kWh), those ofconventional electricity [NREL 2002, p. 40].The Dutch energy levy (see Box 4.9) is themost rigorous measure taken in any country.It has been increased in several incrementsand now amounts to 6 €cent/kWh (8.4¢CDN/kWh) for small consumers (
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