While this remains a political hot potato, the issue of how best to encourage businesses and consumers to prioritise sustainability remains a key topic of debate. The Australian Government has historically leant towards punitive measures to encourage businesses – and they do have their advantages – but it may be advisable for the new administration to take a leaf out of the US’ book and try rewarding energy efficiency instead.
The government has just enacted the Building Energy Efficiency Disclosure Bill 2010, a new scheme for energy efficiency. The new law applies to commercial office buildings over 2,000 square metres and, once the transitional period is over, owners of such properties will have to register a Building Energy Efficiency Certificate disclosing the sustainable qualities of the property or face fines of up to $110,000. While there’s no disputing an initiative of this nature is better than none, when considering legislation to drive energy efficiency in the future, perhaps the government should consider a move away from punitive measures to more rewards-based incentives, like those in place in the US as well as the current, consumer-focused, Renewable Energy Bonus Scheme.
Carrot versus Stick
There are a number of similar strategies in place in the US that entail providing positive monetary tax incentives for taxpayers who qualify under the related sections of the law. The US’ Energy Policy Act, introduced in 2005, provides US$1.80 per square foot tax incentives for energy efficient buildings and retrofits. In addition, consumers who purchase energy-efficient products or renewable energy systems for their homes may also be eligible for tax credits of 30 percent of the cost, up to US$1,500. There are also tax allowances for energy efficient cars for both consumers and business and more allowances for companies using fuel cells, micro turbines, combined heat and power (CHP) systems and on-site renewable energy sources.
It would be remiss not to point out there are notable differences even between the two property schemes (the US legislation applies to residential as well as commercial buildings, for example). However, using tax credits is an innovative approach, which has been well received in the US and has garnered significant positive feedback. It certainly seems that providing positive incentives to adhere to legislation is more likely to encourage businesses to adopt energy efficient solutions, so that approach should be considered for future use in Australia. There are a number of possible reasons why rewards are more successful than financial punishments. Firstly, property owners threatened with fines for non-compliance are potentially likely to seek loopholes to avoid the legislation and in turn the fine. However, the proactive and positive approach adopted in the US encourages business to actively try to meet the legislation’s requirements.
Secondly, everyone is liable to stick their head in the sand from time to time and when faced with the threat of a fine, building owners can always convince themselves they won’t be caught and therefore not feel the need to adhere. In contrast, the tangible financial rewards available from tax credits provide demonstrable ROI on investments in energy efficiency – a much stronger incentive.
Energy efficiency will be a topical and thorny issue for the new government, whichever party it comes from, and there will be substantial pressure to introduce new sustainability initiatives. While ‘carrot versus stick’ will continue to be debated for centuries to come, when it comes to energy efficiency in business, the arguments in favour of providing tax incentives far outweigh those for fines and penalties. I would certainly hope this is the route we see Australia following in the coming months.
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Written by Peter Garrett
Image credit: Alpha via Flickr Creative Commons
