Cutting Costs with Green Tax Incentives - Part 1

The Energy Policy Act of 2005 (EPACT) is one of the most comprehensive and sweeping energy legislation packages ever passed. Signed into law by President George W. Bush on August 8th, 2005, the bill authorized massive tax benefits, reductions and deductions, plus loan guarantees in an effort to spur action on a new energy policy.

Buried among these voluminous new initiatives now part of the IRS Tax Code, was the new Deduction of Energy Efficient Buildings granted under Title 26, now known simply as Section 179D. Specifically, Section 179D offers substantial tax benefits to commercial property owners to upgrade their buildings and make them more energy efficient. The legislation was targeted to expire in 2008, however, the American Reinvestment and Recovery Act of 2009 extended the benefits of this bill through 2013. Perhaps due to the enormity of the legislative package, or a lack of understanding, the IRS reports that less than 2% of all commercial property owners have taken advantage of this tax saving opportunity.

There are special rules for government owned buildings, wherein the tax benefits may be transferred to a project manager or architect, but for purposes of this article, we will focus on how banks, as building owners and leaseholders, can leverage these benefits.

About the Actual Deduction

Under Section 179D, deductions are based on areas of energy savings and total square footage of a building. The regulation provides commercial building owners and leaseholders with a deduction for implementing energy-efficient commercial building property in their buildings between December 31, 2005, and January 1, 2013. The deduction is available whether the respective space is new construction or already existing and applies to the year in which the energy-saving property was made ready for its intended use. It is divided into three categories:

• Lighting
  
  
• HVAC & hot water
  
  
• Building Envelope

The maximum deduction of $1.80 per square foot requires a 50% reduction in total annual energy and power costs (compared to a reference building that meets the minimum requirements of American Standard of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) 90.1-2001), not to exceed the amount equal to the cost of energy efficient commercial property placed in service during the taxable year. A partial deduction of $.60 per square foot requires a 16 2/3% reduction in energy consumption, and can be achieved through improvements in one of the previous 3 categories (Lighting, HVAC, Building Envelope). With recent technological advances in lighting, as well as the generally lower costs compared to the other categories, this deduction is considered the “lowest hanging fruit”. A partial deduction for Interim Lighting affords the bank a deduction between $.30 - .60 per square foot and requires a 25 – 40% reduction in lighting power density (50% in the case of warehouses). As many banks have multiple branches, and this is a per building incentive, the deductions can be quite substantial.

To summarize:

Improvements can be made in three categories

• Lighting
• HVAC
• Building Envelope
• Each can achieve a $0.60 deduction per sq. ft.
• Lighting is considered the “low hanging fruit” due to rapid ROI and lower upfront costs

Three Year “LookBack”

What about banks which may have already made significant investments in energy upgrades? Fortunately, the IRS rules allow banks to take deductions on qualified upgrades completed during the 3 prior tax years. For qualifying institutions, this is simply found money.

Certification of Qualified Property

To insure receipt of expected credits, the taxpaying entity must certify the property meets all energy-conservation claims, and establish the total annual energy savings required for obtaining a partial deduction. The guidelines provide information about the software programs that must be used in calculating these power and energy expenditures.

Additionally, the property must be certified as an energy-efficient commercial building property by a qualified individual. These individuals may not be related to the taxpayer and must be an engineer or contractor properly licensed in the jurisdiction where the building(s) is/are located. The certification need not be attached to the tax return, but Section 1.6001-1(a) of the IRS regulations state that taxpayers are required to maintain books and records that would satisfy investigation into the applicability of the deduction.

Note: The preceding article is not legal nor accounting advice and should not be relied upon without the advice and guidance of a professional Tax Advisor familiar with all relevant facts. It is always highly recommended that you consult with your own attorney and accountant regarding any IRS Tax Code issues.

Joseph Winn is the President of GreenProfit Solutions, Inc. a sustainability consulting, certifying and contracting firm. For more information, please contact Joseph at 1-800-358-2901 or email jwinn@greenprofitsolutions.com.

New SEC Guidance on Climate Change Disclosure - Part 1

What does the Securities and Exchange Commission (SEC) have to do with sustainability? On January 27th, 2010 the SEC published guidance for public companies on the reporting of impacts potentially contributing towards climate change. Additionally, they disclose the effects climate change may and can have on a company’s profitability. While some public and corporate officials are stating that the risks cannot as yet be properly assessed and the requirements are premature, most major investors, which have been supporting the new guidelines, are pleased. Why has the SEC taken this action and is this information really pertinent to an investor?

Let’s take a look at what has been occurring over the past decade. Many states and local governments have enacted their own legislation resulting in greater regulation of greenhouse gas emissions (GHG). GHG legislation on climate change is currently pending in Congress after the House of Representatives approved a bill, later amended in 2009 by the Senate, to limit a company’s emissions of greenhouse gases through a system of “Cap and Trade”. Even the EPA has begun to require large emitters to disclose and report their data.

Since the 1990’s, 186 countries have supported the efforts of the Kyoto Protocol, and the European Union Emissions Trading System (EU ETS) which is the mechanism that controls the Cap and Trade system of allowances and credits for carbon and other greenhouse gases. While the U.S. has never ratified this treaty, U.S. companies doing business in those countries are required to comply.

Climate change risk has not gone unnoticed by the insurance industry. In their 2008 report, major investment firm Ernst & Young stated that climate change was the top strategic risk. They explain it as being, “long-term, far-reaching, and with significant impact on the industry” (Climate Change Greatest Strategic Risk to Insurance Industry). It remained on the top 10 for 2009 (Top 10 Risks Most Likely to Affect the Insurance Sector During 2009). Partially as a result of these reports, the National Association of Insurance Commissioners (NAIC) created an industry standard of mandatory disclosure. Designed for state regulators, it highlights potential financial risks due to climate change as well as actions taken to mitigate them. New actuarial models are in development along with new products specifically designed to cover these new risks.

So what are the risks to a public company? Legislation and new regulations can certainly have a significant effect on capital expenditures. Cap and trade allowances could also force a high emitter to buy credits, creating a negative effect on cash flow. Even companies not subject to new regulations could be affected if their own supplies and services are suddenly only available at a higher cost. As with any challenge, there will be companies well-positioned to benefit from current and proposed legislation. For example, those with “credits” (businesses emitting below their quota) may be able to sell them as investment instruments to improve their own capital position.

Let’s not forget the potential physical effects of climate change. Sea level rise, melting of permafrost, availability of clean water, greater temperature extremes, and increase in storm intensity can all have deleterious effects on a company’s operation and even demand for their products. For example, warmer winters may reduce seasonal demand for heating supplies, while a burst of extreme cold can overwhelm distribution infrastructures; banks holding significant debt in coastal properties could be at higher risk; drought or flooding could negatively impact agricultural firms.

According to the SEC, the new disclosure guidance is simply an extension of regulations pertaining to environmental issues implemented in the early 1970’s. Focused primarily on disclosure guidelines, the original rules sought to monitor compliance regarding material discharge and environmental protection, for use in potential litigation. The current standards have evolved to “provide that information is material if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision, or, put another way, if the information would alter the total mix of available information.” (SEC Release #33-9106 (PDF))

To the CFO, properly assessing risk can be a complex issue, especially when considering the effect climate change may have on future company operations. Granted, there is a delicate balance in disclosure between compliance and stock valuation and demand. Currently, companies who are making some efforts on disclosing climate change risks are simply “burying” them in their 10-K form. It appears this practice is no longer acceptable with the new guidance requirements.
Are there any actions a company facing climate change risks may employ to comply with the full disclosure requirements and still show the company in a positive light? One method suggested is certification, primarily through an internationally recognized program and certification body. The International Standards Organization (ISO) has developed their ISO 14001:2004 Environmental Management System to assist companies in developing or transitioning to more sustainable systems and practices. Their newly developed standards ISO 14064 and 14065 provide an internationally accepted framework for measuring GHG emissions and verifying claims.

In our next article, we will examine the details and requirements of the new SEC guidance, discuss the potential benefits of a certification program, and also measure the relevance this action has on non-public companies.

Keith Winn is the VP Marketing/COO of GreenProfit Solutions, Inc. a sustainability consulting, certification, and contracting firm. You may contact Keith at 1-800-358-2901 or email kwinn@greenprofitsolutions.com.

KPMG Survey Suggests Green Shift in Car Buying

It appears the Auto industry is finally starting to focus on more fuel efficient vehicles. This according to a new global survey of 200 auto executives recently published by KPMG. Could it be they are finally listening to the public?

Hybrid vehicles placed at the very top of their list of alternative fuel technologies for the next five years, followed by battery electric, fuel cell electric and bio-diesel respectively.

Biodiesel technology is low on the list of priorities for auto industry research, according to the survey that was released Thursday.

When asked to rate which were the most important alternative fuel technologies to the auto industry over the next five years, hybrid systems were ranked first followed by battery electric power, fuel cell electric power, and biodiesel, respectively.

In the past, styling was ranked as major feature. No more though. The feature auto executives believed makes the biggest impact on customers' purchasing decisions is fuel efficiency, which was ranked the highest, while the "environmental friendliness" of a vehicle ranked second, followed by safety innovation in third. Styling did not even make it into the survey results.

"Automotive manufacturers are in the challenging position of being asked to compete on both technology and cost. With global consumers still feeling the pinch of the recession, those OEMs who can deliver on this equation will be in the driver's seat," Gary Silberg, national automotive industry leader for KPMG, said in a statement.The survey was conducted September through November 2009.

Now, let's see how they can make those large suv's and trucks truly more fuel efficient. A listing of fuel efficiency and emissions and interactive chart can be found at the EPA's Green Vehicles website.

Manufacturers also hinted at offering incentives on hybrid vehicles, something, until now, was only reserved for large vehicles with conventional gas-powered engines.

With this news, can financial institutions create an auto lending program to attract this new market of borrowers?

The survey was conducted September through November 2009.

Keith Winn is the VP Marketing/COO of GreenProfit Solutions, Inc. which assists businesses in becoming environmentally responsible. You may view their website at www.greenprofitsolutions.com or e-mail Keith at kwinn@greenprofitsolutions.com.

The Article No One Will Read

Wow. I just had a wake up call, maybe even an epiphany. While this may not be a completely green topic, it does refer to email, so unless you are printing your emails (and why would you do that?), I guess we can consider this a sustainable article.

Maybe I am the loner, but when I receive an email, and decide to open it, I generally read the whole message. These are from friends, family and known business associates. I do the same when I receive an email newsletter. After all, these are publications I subscribed to, so most of the content would be of interest to me. After sending out an important email to my friends and family, I found out that I am most definitely in the minority.

I sent out an email to about 60 people close to me, explaining an important topic, and asking their help in performing a 2 minute task. I ....wait a minute, are you still there? OK - I had to resend it 3 times so far, each time, re-explaining in different ways, as dozens of otherwise intelligent and computer savvy people were hopelessly lost. I finally had to build and send an instructional video.

Most writers of emails and newsletters track by Open rate. That’s totally irrelevant, because statistics and research tell me that MOST PEOPLE WON’T EVEN READ THIS. That’s right. And it’s because of a newly diagnosed syndrome, called Email Attention Deficit Disorder (EADD).

Due to information overload, it is estimated that there are over 2 billion people with this syndrome. Symptoms are:

• Simply scanning the first word or two of each sentence or paragraph;
• If the first word does not catch their attention, they skip to the next paragraph;
• If the paragraph has more than a few lines, they don’t even bother scanning;
• The average EADD sufferer spends less than 51 seconds scanning an email.

What does catch their attention?

• Highlighted important words – in red
• Bulleted topics
• Short, easy to manage paragraphs
• Videos – it’s easier than reading

What are the consequences of EADD?

• Sufferers generally miss the important points of the story
• If there is a task required in the email, ironically, they spend more time trying to perform it
• Very little knowledge is gained
• Increases confusion on topic

DO YOU HAVE EADD? If you are still reading, then you’re probably OK.

Pharmaceutical companies are ramping up research on this affliction and I’m sure we’ll soon see TV commercials to “Ask Your Doctor” for the latest and greatest new drugs…I don’t suppose they will have an email campaign.

OK, OK..my friend the Doctor just called. EADD is not an “official” syndrome….I just made that up. But the statistics and “symptoms” are real. Keep these in mind when writing your emails and newsletters and you will get more Opens and even more importantly, more people understanding your content.

Keith Winn is the VP Marketing/COO of GreenProfit Solutions, Inc. which assists businesses in becoming environmentally responsible. You may view their website at www.greenprofitsolutions.com or e-mail Keith at kwinn@greenprofitsolutions.com .

Is Your Seafood Sustainable?

Fishing practices worldwide are damaging our oceans, depleting fish populations, destroying habitats and polluting the water. Informed consumers can help turn the tide. However, before finding a solution, we must discover the problems facing marine ecosystems. The following three issues can be solved through the same strategy, consumer choice. So what are these global challenges facing fisheries? And what does this have to do with your financial institution?

Overfishing
With an ever-growing world population to feed, fisheries worldwide are strained to their limits, in a state of decline, or, in worst case scenarios, have already collapsed. In the western Atlantic, cod were once so plentiful that fishing trawlers had a hard time just pushing through them. Today, they are almost nonexistent. When a fishery collapses, thousands of people are forced out of work and the fish species itself becomes in danger of extinction. Worldwide, fishing fleets are taking fish out of the oceans faster than they can reproduce. It is important to know which fish are most vulnerable to overfishing. Generally long-lived and slow growing species, including the Chilean Sea Bass (formerly known as the Patagonian Toothfish), living at least 40 years, and the Orange Roughy (Slimehead family), known to survive for over a century, tend to mature late and have low reproduction rates. Effectively, even relatively minor fishing pressures can have devastating impacts on such fisheries.

Habitat Destruction
Another major issue facing global fisheries is habitat destruction. Some trawling techniques employ an extremely efficient method of dragging nets along the ocean's bottom, scooping up nearly every fish in its path. While it results in large catch rates, it also has the unfortunate result of destroying any life on the ocean floor as large rollers are used to weigh the nets down. This leaves a flattened seascape, unable to recruit new life in the now-barren habitat.

Bycatch
This is another serious problem in global fisheries. Most prevalent in the previously-described trawling style of fishing, it is the unwanted or unintentional catch of non-target species. Worldwide, it is estimated that fisheries dispose of 25% of their catch for this reason, resulting in a nearly 100% mortality for those unfortunate enough to be caught. For example, it is estimated that for each pound of shrimp caught in a trawl net, an average of two to ten pounds of other marine life is caught and discarded overboard as bycatch. In addition, dolphins, whales, turtles, and sharks are frequently caught in trawlers’ nets and long-line operations, often severely affecting their populations.

Solutions
So how can your financial institution help? Well, education is always the most powerful means, followed by using yours and the combined wallets of your customers and members. Encourage patronizing of establishments which support sustainable fisheries while making an effort to educate those who have yet to understand the issues. Certain grocery stores have committed to stocking sustainably harvested fish as well. How can you tell? Look for the Marine Stewardship Council seal on produce counters or in restaurants. But what about fish which aren't under the MSC guidelines? The Monterey Bay Aquarium Seafood Watch has compiled and published a series of Regional Guides which you may download free of charge. These handy pocket guides show you which fish to avoid, good seafood alternatives, and best choices for both health and sustainability. Prefer a paperless alternative? A free iPhone app (opens in iTunes), complete with all regions and their respective seafood recommendations, is available, making sustainable seafood choices accessible anywhere your iPhone or iPod Touch travels.

Photo credit: Monterey Bay Aquarium

Water

Being based in South Florida, water is a regular part of our lives. On the west, we are bordered by the Gulf of Mexico, while the Atlantic Ocean graces our eastern shore. The southwest region of the state is entirely dominated by the Everglades, a region of enormous biodiversity and importance. This completely notwithstanding the Florida Keys, the only living barrier reef system in the continental United States. For us, water isn’t just a drink or the recipe for a fun weekend; it is our livelihood. As the top tourist destination on the planet, we entertained over 76 million visitors in 2004, providing a $57 billion effect on our economy . Much of this is due to our shores and underwater treasures. From airboat tours to SCUBA diving trips, our natural resources are invaluable economically and environmentally.

So how can we balance their environmental preservation with our own social growth? The draining of the Everglades has been covered nationally as one of the most ambitious land reclamation projects ever conceived. Looking back, was it a bad idea? Absolutely, it disrupted the natural flow of freshwater from the Lake Okeechobee region into the Everglades and subsequently, the Florida Bay. We’re now spending billions of dollars and countless work hours in an attempt to return the system to some semblance of the original design. However, by drying up a large part of the historical Everglades in the early 20th century, it accomplished the original intent of the Army Corps of Engineers. Massive population centers in South Florida would not exist as we know them had the region not been dried and water flows redirected into canal systems. Permanent building was impossible due to the constant variation in water levels before the canals. Much of the reclaimed wetlands was initially used for farming, a natural fit due to the rich swampy “muck”. Our economy grew from those farmers, fast-forwarding to Flagler’s Railroad and the first tourists. Some of those visitors constructed winter homes in the area, slowly converting the region from the next agricultural frontier (which it remains to this day in some regions) to the must-visit destination of the U.S.

Of course, even then, tourists came here not for the mosquitoes, humidity, or sunburns (well, maybe the tanning), but for the water. Since the water they craved was ocean, there was need for another source of water to drink. Underneath the southern part of the state lies the Biscayne Aquifer, the primary source of our water supply. While other regions have large, well-filtered aquifers buried thousands of feet below the ground, the Biscayne Aquifer is essentially our water table. It fluctuates with rainfall and is directly accessible from the surface. While it makes extraction very simple, it presents a number of significant issues. Fertilizers and other toxins readily make their way into our water supply. Additionally, when over-pumping or periods of drought occur, saltwater intrusion becomes a serious problem. Ironic that the state which receives more rainfall than nearly anywhere else in the continental United States is most at risk for water shortages.

“Thanks for the history lesson”, the reader might say, “but what’s it to us?” Especially here, where the environment is so closely linked with our economic well-being, the need to consider sustainability along with growth is essential. The advice for Floridians is valid anywhere. Nutrient overload is causing damage to our nearshore water quality, reef health, and wetland viability. This originates from agricultural facilities, yes, but also from the average family’s green lawn. How can you make a difference? Take care to avoid fertilizers and pesticides unless necessary, then using only the natural varieties. Time-release formulas can positively affect our water supply as they only use what is needed at the moment, minimizing runoff. It may not be apparent, but no matter where you are, every chemical you pour into your soil eventually makes its way to a waterway. Native plants require fewer, if any, fertilizers. A growing trend nationally is xeriscaping, or planting native flora. My home county has a NatureScape Broward program which highlights homes and businesses who have met a xeriscaping goal. These yards require less care and watering, thereby lowering their total cost of upkeep.

Reducing total water consumption also helps to preserve the natural environment. In a way, it is unfortunate that, for most users, water is so cheap as to render a financial savings extremely minimal. At a rate of ~$2 per 1,000 gallons, even massive reductions will not result in significant savings. However, there is another reason to save water — it’s a limited resource. Though we may not have a direct eye into our own supply, know that the less each of us use, the better off all us will fare.

A number of technologies, both old and new, are available to help reduce our depletion of valuable aquifers. Low-flow toilets, shower-heads, and faucets can more than halve indoor usage. Atmospheric water generators allow drinking water to be produced straight from the humidity in the air, purified for instant enjoyment. For irrigation purposes, cisterns connected to building gutters can retain the water necessary to keep the plants green through the hot summer or dry spring seasons.

Whether it be flowing down a plain in the Everglades, surrounding a healthy coral reef, or sitting in an ice-filled glass, water is an essential resource. Please treat it as such.

Joseph Winn is the President/CEO of GreenProfit Solutions, Inc. which assists businesses in becoming environmentally responsible. You may view their website at www.greenprofitsolutions.com or e-mail Joseph at jwinn@greenprofitsolutions.com .

Greening Your Financial Institution's Paper

Paper. It comes in countless forms, be it for magazines (shiny), newspaper (thin), or office printers. The material is used for more than just traditional sheets; there are sticky notes, mailing envelopes, and packaging that embrace its varied purposes. Of course, all paper, at its base, is the same, right? The conventional wisdom reads: paper = tree, with the primary variations being in what quality level is desired. Unfortunately, this isn’t entirely true. There are many aspects to consider, from recycled content (and is it pre- or post-consumer?) and certification level, to chlorine content. Let’s go through in that order.

Recycled paper products have been available for many years, and are perhaps the most widely used of the “green” office supplies. The premise is that the paper is produced from other paper as opposed to new trees. It can originate through pre- or post-consumer material, but what is the difference? Pre-consumer content may have been paper, but for a variety of reasons (off-cuts, misprints, poor quality, etc.) failed to be released from the production process. Much of this is immediately recycled, therefore explaining the high prevalence of pre-consumer content in recycled products. Post-consumer content originates from the paper you place in your office recycle bin. The percentage seen on the recycled paper packaging at the store is the sum of both these paper formats.

So, now you’re wondering why all paper isn’t simply 100% recycled (with varying pre- and post-consumer content)? Well, different compositions are better suited for differing purposes. Beyond 35% post-consumer content, the pulp is unreliable for commercial printing, but is normally fine for personal and office use. Paperboard, cardboard, and other packaging materials do not require a high quality, and are therefore often 100% recycled. All of these forms can be recycled approximately seven times, at which point the fibers are too short for reuse.

With no defined standard on what makes paper “recycled”, it is up to the consumer to know what they are purchasing. Seek the highest percentage of post-consumer content in the quality you need, but remember, you will likely be unable to find more than 35% due to the limitations explained previously. As new experts on recycled paper, there’s a large question that is not addressed by the recycling process: any takers? It deals with how the virgin wood pulp is harvested, thus leading the discussion to certified paper.

Certified paper is the exact same paper you’re used to, however, it originated from forests managed in a standardized way with consideration for a variety of environmental and social factors. The process is third-party monitored from tree to paper by one (or more) of three primary certification agencies: Forest Stewardship Council, Sustainable Forestry Initiative, and the Programme for the Endorsement of Forest Certification. FSC is the largest and was set up by the United Nations, while SFI was put together by the paper industry in North America, and PEFC by the same groups in France and Europe. Each operate similarly, and a producer may seek multiple certifications. This paper may also contain recycled content, however, since its production results in minimal to no net tree (or biodiversity) loss, it makes paper a more renewable and sustainable resource.

Finally, chlorine usage in the paper production process can result in large chemical effluent from the facility. To minimize this pollution, chlorine-free paper is now in production. According to the Natural Resources Council of Maine, however, there are three different labels one might see : TCF (Totally Chlorine Free), PCF (Processed Chlorine Free), and ECF (Elemental Chlorine Free). TCF means both the virgin and recycled content are chlorine free, while PCF only provides assurance the virgin fibers are free of chlorine (recycled content may contain chlorine). ECF only refers to the type of chlorine used, has no bearing on the chlorine in the paper, and therefore does not avoid the production of dioxins in the effluent.

In review, recycled or certified paper is good, certified paper with high recycled content is better, while certified recycled paper rated TCF (Totally Chlorine Free) is best. Of course, the standard practices of reducing and reusing still apply.

Enjoy your newfound paper wisdom, and print wisely!

References:
Forest Stewardship Council: www.fsc.org
Sustainable Forestry Initiative: www.sfiprogram.org
Programme for the Endorsement of Forest Certification: www.pefc.org
Natural Resources Council of Maine: www.nrcm.org/chlorinefreepaper.asp

Joseph Winn is the President/CEO of GreenProfit Solutions, Inc. which assists businesses in becoming environmentally responsible. You may view their website at www.greenprofitsolutions.com or e-mail Joseph at jwinn@greenprofitsolutions.com .