Promoting Green Power in Canada - Centre for Human Settlements

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Promoting Green Power in Canada Pollution ProbeBox 4.9 — The Dutch “Regulating Energy Levy” (REB) [DE 2002c]The Netherlands has subjected energy and gas to a levy, in addition to VAT, in order toprovide a strong incentive to save energy. Renewable energy is exempt from this levy,which means that especially wind power can compete with conventional energy sources:most renewable energy products are offered at the same price, or a 1 €cent (1.4¢ CDN)premium (a maximum monthly cost of €2.75/$3.85 CDN to consumers). One product iseven available at a discount. The funds raised by this levy are made available torenewable energy projects through a 2 €cent (2.8¢ CDN) production incentive. At an extracost of 5–6 €cent for renewable energy in the Netherlands this would not be enough tocover the green premium by itself, but together with the tax exemption green powerbecomes competitive. The levy depends on the amount of energy a client consumes:10,000 kWh 6.01 €cent/kWh10,000-50,000 kWh 2.00 €cent/kWh50,000–10 million kWh 0.61 €cent/kWhAbove 10 million kWh 0.00 €cent/kWhLarge hydropower (>15MW) is considered a mature electricity product that does not needthe full support of the REB. Hydro is thus not exempt from the energy levy, but stillreceives the production credit.Most of the tax (about €2.8 billion/year) is re-directed to Dutch citizens and businessthrough National Insurance (pension fund) contribution reductions. The remainder, about€200 million per year, is used to support renewable energy production through theproduction incentive [MEZ 2002b].large electricity customers only and can bereduced by voluntary energy efficiencyprograms. Revenues from this levy alsobenefit renewables support programs. Table4.11 provides an overview of some existingenergy taxation schemes.In the United States, the State of Iowaencouraged energy production from windand methane from the electricity tax [RAP2001, p. 21]. A somewhat particular case isOregon’s Bonneville EnvironmentalFoundation. The Foundation offers greentags, representing the environmental andsocial benefits of renewable powergeneration, to US customers over the Internet.Expenses for these tags are tax deductible foreveryone since the Foundation is a registeredcharity.4.6 Other Policy Options4.6.1 Direct Subsidies and Low-InterestLoansSeveral countries, including Canada and theUnited States, pay production incentives tosupport renewable power generation on aper-kWh basis. Such subsidies are oftenfinanced by special taxes or levies, or asystem benefits charge in California, andeffectively bring down the price of renewableelectricity, sometimes enabling it to competewith conventional electricity. Although theCalifornia customer credit is not paid toenergy generators, it has the same effect onmarket prices as a production incentivebecause it reduces the premium paid byconsumers. Finland pays production90
Promoting Green Power in Canada Pollution ProbeTable 4.11 — Carbon and Energy Taxes [CSE 2001, HAAS 2001]Country Amount per kWh Amount per kWh in ¢CDNDenmark 1.30 €cent 1.8Finland 0.025–0.04 FIM 0.6–1.0Norway (coal) 0.11 NOR 1 2.15Netherlands (REB) 6.01 €cent 8.4Germany 1.80 €cent 2.5Great Britain 0.43 p 0.97(Climate Change Levy)New Zealand (proposed) 1.5¢ 1 1.11Assuming that a formula of 0.6 tons of CO 2per MWh is usedincentives to small hydro facilities, peat-firedCHP projects, and power plants fuelled bywood or waste gases from metallurgicalprocesses. Larger production incentives(equivalent to the Finnish electricity tax) areavailable for wind projects [NREL 2002, p. 24].Figure 4.7 compares several productionincentives in Canadian dollars. It isimportant to note that the Canadian WindPower Production Incentive of 1.2¢/kWh isnot tax-exempt income and should thereforebe reduced by the current tax rate of about40% [CARE 2002a]. The Canadian Clean Airand Renewable Energy Coalition’s proposalto raise this incentive to 2–3¢/kWh [CEC2001, p. 41] would bring it into the samerange as incentives elsewhere, but wouldvirtually have to be doubled again to makeup for the income tax loss. Both the US andCanadian incentives are paid over a periodof ten years. However, the US incentive,originally set at (US) 1.5¢/kWh, is adjustedfor inflation, that is, it grows over time and is54.5Canadian cents per kWh43.532.521.510.50Customer credit 1.62.72 2.72 2.83.221.2Canada USA California Netherlands DenmarkFigure 4.7 — Comparison of RenewableEnergy Production IncentivesFigure 4.8 — Comparison of US andCanadian Wind Power Incentives OverTime (Note: US incentive increased in 2006with an assumption of 2% annual inflation;Canadian incentive reduced by 40% tax rate.)91
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