A low carbon-economy: more than just the price

The Institute believes that the government should consider the following tax policy options as part of the development of Australia’s comprehensive strategy to transition towards a more environmentally-sustainable economy.

Incentivise renewable energy projects and workforce relocation to remote areas

Public investment in infrastructure is necessary to unleash the flow of private capital that is needed to fund the development of innovative ‘green’ technologies. There are a range of potential measures that could be considered to encourage investment in renewable energy projects and assist with incentivising workforce relocations, including:

• R&D tax credit
  Enact the proposed new R&D tax credit and use that framework to provide an enhanced tax credit for the development and commercialisation of approved innovative renewable energy production technologies
• Income or state tax exemptions
  Offer a partial or full income or state tax exemption for qualifying renewable energy production projects (for a finite period, such as three to five years). The aim would be to stimulate domestic and foreign investment by providing a fiscal incentive in the early years when renewable energy production costs are higher; over time exemptions could be withdrawn as economies of scale are realised and production costs fall
• Double rent / interest deduction for businesses setting up in particular geographic locations
  Similar in concept to investment allowance and other bonus deduction-type policies, a double rent deduction or interest deduction could be given to businesses to encourage the creation of new communities and local infrastructure to support renewable energy projects in remote locations. The demand for rental or purchased commercial premises should in turn attract development and construction in those zones
• Zone tax offset for individuals
  Use the existing zone tax offset framework to encourage people to live and work in remote or isolated areas that become homes to renewable energy projects, by adding those particular regions or townships to the Australian Zone List
• Green jobs grants
  Provide grants to employers to partially contribute towards salary and other employment on-costs so as to incentivise and support employers to create jobs in particular sectors / locations / projects
• Green skills workforce training programs
  Provide government funded training to invest in up-skilling of unemployed and unskilled labour, for re-deployment as qualified trades people to perform essential functions on qualifying renewable energy projects (such as mechanics, fitters and installers)
• Employee accommodation
  Ensure that taxation laws are not operating to inappropriately discourage investment in, and supply of, transient workforce accommodation in remote – or zone tax offset – areas. For example, GST law should apply in such a way that employers and third party accommodation suppliers to employers are not subject to net GST costs in relation to transient workforce accommodation. The application of fringe benefits tax rules to remote area housing should be reviewed also.  

Encourage energy efficiency improvements

• Green buildings incentives
  Implement the green building initiative proposal to improve the energy efficiency of Australia’s existing building stock, through the introduction of a simpler ‘Tax Breaks for Green Buildings’ program as soon as possible. This would ensure that owners of existing commercial buildings have an incentive to invest in qualifying energy efficiency retrofits
• Investment allowance
  Provide an investment allowance for acquisitions of new energy efficient plant and equipment in industrial and manufacturing sectors. The use of an investment allowance policy has proven to be a successful initiative when previously used in Australia, even as recently as during the global economic downturn in early 2009
• R&D tax credit
  Enact and use the new R&D tax credit to provide an enhanced tax credit for the development and commercialisation of innovative ‘energy efficiency’ technologies, such as lighting, heating, cooling, and water heating
• Electric vehicles
  Provide a tax break to encourage businesses to invest in electric vehicles for use in corporate fleets, especially in connection with renewable energy projects in remote locations. However, unless the electric vehicles will be powered by the renewable energy generated locally, the incentive may need to be considered as a longer-term policy measure, once a greater proportion of the domestic energy mix is sourced from renewable energy.

The primary production sector

• Investment allowance
  Encourage the acquisition and retrofit of new fuel efficient agricultural plant and equipment
• Subsidies for changing from cropping / grazing to alternate land management
  Primary producers could be encouraged by way of grants or payments under ‘land management contracts’ to change the use of certain land to more environmentally desirable purposes, such as biodiversity reserves
• Subsidies for particular cropping industries assessed as ‘carbon negative’
  Certain cropping industries, such as growers of kiwi-fruit, avocado and macadamias, could be assessed as having a ‘carbon negative’ status for production and could earn carbon sequestration points that are assigned a particular value. A similar concept is being applied in New Zealand in respect of soil carbon embedded in kiwi-fruit orchards
• Tax credit based on the value of eligible ‘carbon farming’ activities
  To encourage the primary production sector to use land for carbon sink / biodiversity purposes prior to an emissions trading scheme coming into operation, a refundable tax credit could be offered for abatement delivered in accordance with the Carbon Farming Initiative. This could include reforestation and revegetation, reduced methane emissions from livestock, reduced fertiliser emissions, manure management, reduced emissions or increased sequestration in agricultural soils, savanna fire management, burning of stubble/crop residue, and reduced emissions from rice cultivation.

 

Article last updated 28 September 2011