Federal budget 2012: Tax break of $1 billion for green building over before it began

The government announced in the budget that it would not be proceeding with a tax break for energy-efficiency upgrades of commercial buildings – a loss of $405.2 million over forward estimates and $1 billion over the life of the program.

This program would have enabled businesses that upgraded buildings from two stars to four stars or higher a bonus tax deduction of 50% of the cost of the eligible assets or capital works.  The government argues that the institution of the carbon price, support available from Low Carbon Australia and also potentially the Clean Energy Finance Corporation (CEFC) makes this program redundant.

This program was always a relatively clunky way of incentivising upgrades in energy efficiency of existing buildings, that would be far better dealt with through an energy efficiency credit trading scheme. However it is the only meaningful program for driving upgrades in the energy efficiency of existing commercial buildings. Unlike new buildings, the far more numerous stock of existing commercial buildings were never subject to any form of minimum energy efficiency standards. Therefore upgrading their energy efficiency represents a large opportunity for cost-effective abatement.

Low Carbon Australia and the CEFC are not really equivalent replacements. Low Carbon Australia’s funding falls well short of a billion dollars. Also the CEFC is an unknown quantity and could represent an administratively onerous and inconsistent model for incentivising energy efficiency. Plus the carbon price impact on electricity prices will not overcome split incentive problems in the sector.

Hence the displeasure of the CEO of the Energy Efficiency Council, Rob Murray-Leach who said: “The government justified this budget cut by saying that the Tax Breaks would have been a more expensive way of cutting emissions than the carbon tax. This is absolute rubbish. This program would have helped building owners save energy and save money, which means that it would have lowered the cost of meeting Australia’s greenhouse gas targets.”

Murray-Leach continued noting that: “The government knew they were going to introduce a carbon price last year, but they didn’t cut the tax break for green buildings in May 2011. This cut is nothing to do with a carbon price, and all about the government saving money at the expense of business”.

To drive rapid improvement in the energy efficiency of Australia’s building stock requires a straightforward, transparent, rules-based qualification model; rather than reliance on project by project selection processes that rely strongly on the individual judgement of program administrators. The loss of the tax break is a backward step in this regard, and disappointing for the energy-efficiency sector.

Hopefully the property sector will now come to their senses and get behind a National Energy Savings Initiative instead of lobbying for tax breaks.

This article originally appeared on Climate Spectator.