The New Green, by Jodi Smith

Jodi Smith, is a freelance consultant who works with GreenBizCheck gold certified, green recruitment specialists, Turning Green.
Jodi holds a Masters of Environmental Science / Law from the University of Sydney, and a Bachelor of International Studies (Globalisation) from UNSW, of which she completed one year of study at McGill University, Montreal, Canada. Jodi now works full-time in the IT industry, and freelances as a writer in the environment space, most notably writing about green jobs for Turning Green Consultants.
Throughout university, Jodi interned at the Australian Institute of International Affairs, The Walkley Awards for Journalism, and the Australian Youth Climate Coalition.
Jodi is passionate about environmental preservation, having worked as a PADI Divemaster as well as having done extensive anthropological studies, combined with assisting on UNESCO projects, in the Pacific Islands. If you would like Jodi to write for you, please contact her at: jodi.martine@gmail.com

The property sector in Australia represents a significant source of greenhouse gas emissions, due both to direct energy consumption as well as the building and maintenance of properties. In fact, in Australia, buildings account for around19% of national energy use, meaning that commercial property contributes about 13% to Australia's total annual greenhouse gas emissions.

Consuming almost one-fifth of Australia's annual electricity use, largely from older buildings with limited sustainable design functionalities, the commercial property sector is a necessary focus area to induce energy savings. Case in point, the Green Buildings Council (GBCA) of Australia suggests that up to 95% of commercial properties in Australia are not brand new. "Greening" these properties represents a large challenge, both for the environmental sector and policy makers. Given the energy consumption levels and age of many commercial properties throughout the country, the Federal government has proposed plans to reward the retrofitting of old buildings to promote energy efficiency.

Announced as part of the 2010 Federal government's election promise, the Tax Breaks for Green Buildings Programme involves granting tax breaks from July 1, 2011- June 30, 2015, for businesses that improve the energy efficiency of their commercial building space. In enhancing the energy efficiency of their property, businesses not only reduce their levels of greenhouse gas emissions, but also concurrently save in electricity costs. The proposed scheme enables businesses to apply for a bonus tax deduction of up to 50% of the cost of eligible assets or capital works involved in the retrofitting of commercial a property.

Yet, there are several provisos built into the scheme. One is that the building must be a commercial property, such that it is covered by the National Australian Built Environment System (NABERS) scheme. This currently includes offices, shopping centers, and hotels. In order to receive the tax break, the retrofit also needs to be approved by a nominated NABERS assessor both before the retrofit has commenced and upon its completion, in order to validate the energy efficiency improvement. All claimable expenditures must also be incurred as part of a retrofit of a named building in order to qualify for the tax break. That is, new buildings cannot apply for this tax deduction. Another condition is that the retrofitted building must go from a 2-or-less star NABERS energy efficiency rating to a rating of 4 stars or more.

Initial stakeholder submissions on the Tax Breaks consultation paper closed in mid-February this year. No finite result has been released by the government post-consultation, though it is expected that the legislation be drafted and introduced sometime in 2011. Many stakeholders have signalled praise for the scheme, such as the not-for-profit group Taxpayers Australia, who have indicated the positive differences between this tax break and previous proposals such as the home insulation and green loans schemes. This is because the Tax Breaks for Green Buildings Programme combines an incentive for changed behaviour within the context of rising electricity prices and a looming carbon emissions tax, and the associated financial repercussions of these policies.

Representatives from the GBCA have also voiced their strong support of the scheme, stating that the incentive to retrofit existing buildings is a very cost-effective carbon abatement strategy. Likewise, the Property Council of Australia has expressed the view that the Tax Breaks for Green Buildings incentive will bridge the payback gap between investment in energy efficient capital and the cost savings induced by running and up-keeping more energy efficient buildings.

Still, many stakeholders have voiced concerns over several aspects of the Tax Breaks scheme. The scheme, proposed in its initial state, has been criticised as being "too restrictive" in terms of the mandated 2-or-less star increase to 4+ star NABERS energy rating. The GBCA, for instance, has instead suggested that the scheme measure energy efficiency improvements in kilograms of carbon dioxide/square meter/year, as this measurement provides a more exact improvement reading and is easier to compare nationally and internationally. Measurements in Kg/carbon, according to the GBCA, would also allow tax breaks for improvements of a certain magnitude, regardless of the start or end point, and thereby reduce the scheme's rigidity. The GBCA has also proposed that the scope of the scheme be broadened to include Real Estate Investment Trusts, which do not qualify for tax breaks under the program but represent 56% of shopping centers and 39.6% of office buildings in Australia. The principal idea being that the scheme's primary objective is energy efficiency and greenhouse gas emission reduction, which necessitate a holistic and inclusive approach to retrofitting commercial property.

Additionally, in their policy submission, the Institute of Chartered Accountants Australia have described the energy efficiency improvement process "as too complex, onerous and uncertain". Both the Institute and the GBCA also stipulated that non-capital expenditure should also be a claimable expense, especially where this includes labour costs.

Another criticism of the Tax Breaks program has been that the tax deduction can only be acquired once the retrofit works have been completed, meaning that deductions may only be realised up to four years following the commencement of a retrofit. The concern is that the requirements for tax deduction eligibility may be too limiting, causing uptake of the program to be less widespread than expected. Also, the government has also projected to set aside $135 million for this scheme. In order to stick within budget, there has been a proposal to cap eligible expenditure, either on a first-come, first-served basis, or through a competitive application process. However, different stakeholders have indicated a variety of opinions as to the optimal method of budget breakdown and allocation. All of these aforementioned concerns and considerations will inevitably shape the final piece of legislation.

Nonetheless, the Tax Breaks for Green Buildings Programme crosses over several similar pieces of legislation. NABERS regulation for instance, introduced in November 2010, mandates that commercial buildings with a net lettable area of 2000 m2 or more declare their energy efficiency rating, in accordance with the NABERS star-rating system. The premise is that this rating should have a direct impact on the overall value and leasing prices of the building.

Most recently, state governments have also amended legislation to support retrofitting efforts like the Tax Breaks for Green Buildings Program. In NSW, for example, the Local Government Act 1993 which was recently changed to allow for easier acquisition of loans to fund retrofitting projects, as well as to allow increased rental prices being passed on to tenants where such increases are a direct result of retrofitting projects. Similarly, in Victoria, amended clauses to the City of Melbourne Act 2001 were brought about to support the Melbourne 1200 Buildings program, which helps building owners to obtain finance for retrofitting works. These Acts will likely support the Tax Breaks for Green Buildings legislation when it is finally introduced later in 2011.

Given the likelihood of the Tax Breaks programme going ahead, it is important for candidates working in businesses, whether in the green space or not, to be aware of several factors. Candidates, business space renters, investors and property owners who work in or own older buildings can take the initiative to apply for this scheme when it is introduced. In doing so, they will experience both financial and environmental benefits. Candidates working in sustainable design and architecture, engineering and in the trade services industry should also be aware of the additional work opportunities that will inevitably arise from this scheme.

In addition, it is not expected that jobs will be perversely affected by this scheme in any way. Rather, given the cost-effectiveness of the scheme, it is expected that it will actually create jobs. Industry giants such as Stockland, for instance, have indicated that allowing accelerated depreciation for making older buildings more energy-efficient is, at present, one of the best tax reform measures to encourage greenhouse gas emission cuts. The dual environmental and economic incentive inherent in the scheme therefore means not only job security, but the creation of jobs too. Research has even shown that retrofitting a portion of commercial property in Australia will support the growth of green skills and trade. The scheme as it stands has the potential, according to Davis Langdon research, to create over 10,000 jobs nationally. Those in the know should be sure to look out for these work-based opportunities once the Tax Breaks scheme comes in to play.

Though the Tax Breaks for Green Buildings Program has not yet been formally legislated, government, industry and green groups all seem to agree on its' potential. How this manifests in reality remains to be seen, but one thing is for sure, and that is that candidates, investors and businesses should be at the starting line to reap its built-in economic and environmental rewards.