Proposed North American greenhouse gas (GHG) cap and trade programs would require large GHG emitters to substantially reduce carbon emissions. These reductions may require investment in energy efficiency, renewable power, and the development of alternative low-carbon fuels. Most states and provinces offer incentives that support these investments, e.g., government grants and tax credits that help businesses develop, test and implement new "green" technologies or process changes to reduce energy demand and GHG emissions. To provide examples of these programs, this bulletin highlights some selected U.S. and Canadian incentive programs.

This bulletin is part of our ongoing series of updates on the business implications of the cap and trade regimes being developed by the members of the Western Climate Initiative ("WCI") and the Midwest Greenhouse Gas Accord ("Midwest Accord"). Previous bulletins on these major cap and trade programs can be found here.

U.S. Incentives

U.S. federal and state governments offer a range of programs to reduce GHG production from manufacturing, commercial and residential activities, and power production. Three core programs focus on: (1) renewable energy, (2) alternative transportation fuels, and (3) energy efficiency.

Renewable Energy

U.S. federal and state business incentives to develop renewable power help utilities and independent power producers, and businesses that could benefit from on-site electricity production for process, heating/lighting and similar energy uses. Moreover, 25 state governments mandate renewable energy portfolio standards requiring utilities to purchase significant amounts of renewable energy.

The federal Energy Policy Act of 2005 ("EPAct") provides support for renewable power, including federal tax credits for businesses that install fuel cells or micro-turbines or which use solar or geothermal energy. The EPAct also provides federal tax credits to businesses that install hybrid solar lighting systems which include rechargeable batteries or alternate power when solar energy is not available. The federal Energy Tax Incentive Act of 2005 created Clean Energy Renewable Bonds to finance public sector renewable energy projects although the funding level was small ($500 million total) and the awards were mostly for small projects.

Renewal and extension of the very important federal Production Tax Credits for energy produced by wind, solar, and other renewable energy sources remains in doubt as Congress struggles to produce new energy legislation.

The federal government also promotes public private partnerships to promote renewable power development. For example, EPA's Methane to Markets Partnership is a multilateral partnership to advance cost-effective technologies that capture and use methane – a significant GHG – as a clean energy source. Partners can share development ideas and collaborative business development opportunities.

Most states also support renewable power production with tax incentives, grants, and preferential pricing statutes. For example, Arizona offers businesses a retroactive tax credit ($25,000 maximum per building; $50,000 maximum per taxpayer annually) to install wind and solar energy systems. Idaho and Washington provide sales tax or sales-and-use tax exemptions for renewable energy equipment such as wind turbines. Washington businesses may also receive

$2,000 per year for projects that generate electricity from solar, wind or anaerobic digesters. California's State Self- Generation Incentive Program gives direct financial incentives to businesses for wind turbines or fuel cells.

Alternative Transportation Fuels

Cars and trucks emit 40% of U.S. GHGs. To stimulate the use of low carbon transportation fuels, the EPAct requires U.S. motor fuels to include 12 billion gallons of ethanol and provides numerous incentives to businesses including a $5 million annual grant fund (until 2010) to test biodiesel in advanced diesel fuel engines as well as a tax credit for large and small biodiesel producers.

EPA has similar programs to promote biofuels. EPA's AgStar Program assists livestock producers (typically swine and dairy farms) to evaluate and implement livestock waste methane recovery systems. Program participants receive public recognition and are able to sell the methane recovered through the program.

Several states promote biofuels for individual and municipal use. Illinois, Indiana, Michigan and other mid- West states have programs to assist farms and businesses produce renewable energy from animal waste. Moreover, in Texas and Washington encourage energy providers to use methane recovered from animal waste to buttress their existing supplies and reduce reliance on traditional energy sources.

Energy Efficiency

Federal and state incentives are also available to reduce capital costs to purchase and install energy efficient equipment.

The EPAct provides business tax credits to purchase efficient hybrid vehicles, construct energy-efficient buildings, and improve the efficiency of existing commercial buildings.

Several state programs support energy efficiency with tax incentives, grants, and low-interest equipment loans. Oregon offers a Business Energy Tax Credit of 50% of eligible costs for qualifying, energy-efficient projects such as wind, solar, high efficiency energy use and renewable energy. Oregon's Energy Trust offers rebates for purchase of modern equipment to make existing buildings more energy efficient. Illinois offers grants through its Green Business Building Pilot Program (maximum $100,000 per facility) for design assistance on energy-efficient construction. Idaho offers businesses low interest $100,000 loans to retrofit operations with energy-efficient equipment.

EPA has initiatives and partnerships to help business improve energy efficiency. EPA's Combined Heat and Power ("CHP") Partnership helps businesses and governmental agencies collaborate to identify funding sources for projects that produce heat and electricity from a single fuel source (cogeneration).

Information on additional U.S. incentives can be found at: www.dsireusa.org/index.cfm?EE=1&RE=1 and www.eere.energy.gov/afdc/incentives_laws.html.

Canadian Incentives

Canada's federal government and a number of provinces have programs that support green business innovations. Three core programs focus on: (1) renewable energy, (2) alternative transportation fuels, and (3) green technology.

Renewable Energy

The federal ecoENERGY for Renewable Power Fund will distribute $1.48 billion over 14 years to provide a one cent per kilowatt-hour subsidy to eligible entities such as utilities, businesses, municipalities, institutions and other organizations that produce renewable energy for sale in Canada. The program will pay up to $80 million to a single project, but not more than $256 million to any individual entity.

Several provinces have related renewable energy programs. Alberta provides biogas producer power credits to support commercial production of biogas-electricity (methane from anaerobic digestion processes or electrical power that is a by-product of bio-refining or bio-mass processes). British Columbia will provide $25 million to fund a Bioenergy Network for investment and innovation in B.C. bioenergy projects, such as landfill methane.

Alternative Transportation Fuels

Between 2008 and 2017, the federal ecoENERGY for Biofuels Program will invest $1.5 billion to help businesses increase production of renewable fuels like ethanol and biodiesel. The federal ecoAGRICULTURE Biofuels Capital Program will invest $200 million through 2012 to provide capital (up to $25 million per project) to construct or expand biofuel production facilities. Sustainable Development Technology Canada (SDTS), a non-profit foundation funded by the federal government, supports the establishment of first-of-kind commercial scale demonstration facilities for the production of cellulosic ethanol and new biodiesel technologies through its $500 million NextGen Biofuels Fund.

Alberta has a program to support biorefiners and investors to specifically expand the market and production of biogas, biodiesel and ethanol. Moreover, this program expands the distribution and transmission infrastructures for these fuels. Maximum funding for individual projects under this program is $5 million.

Alberta's Renewable Energy Producer Credit Program provides $209 million to replace the existing Alberta ethanol fuel tax exemption. Between now and 2011, Alberta will offer credits to Alberta ethanol or biodiesel manufacturers to encourage production or incorporation of bio-fuel or biogas products within the market.

The federal Freight Technology Incentives Program provides cost-shared funding to the air, rail, road, or water freight transportation sector to adopt emission-reducing technologies. Purchase of equipment such as diesel antiidling equipment, ports, airports and trucking stations, hybrid switching locomotives, or electronic speed control systems qualify. Funding can be up to a maximum of 50% of total eligible project costs or $500,000 over a two-year period. The first round of this initiative distributed $3.7 million to 15 projects.

Green Technology

Carbon capture and sequestration (CCS) technologies will be critical to absorb increasing GHG production in Canada and around the world. The federal ecoENERGY Technology Initiative manages a $230 million investment fund that supports research and development of "cleanenergy" technologies such as "clean coal." $140 million of the fund is currently allocated to carbon sequestration technologies that capture and store fossil fuel underground. Alberta has also created its own $2 billion dollar fund to support CCS projects, which will be important to the development of the Alberta oil sands.

Other research and development priorities supported by the ecoENERGY Technology Initiative include distributed renewable or clean-source electric generation, nextgeneration nuclear energy technologies, bio-based energy systems, low-emission industrial systems, clean transportation systems and installation of renewable energy technology in buildings. In addition, SDTS provides nonrepayable seed financing for late-stage development and pre-commercial demonstration of clean technologies through its $550 million SDTS fund.

Some provinces provide similar technology development incentives. Ontario's Strategic Opportunities Program (SOP) provides grants (up to 25% of total eligible costs) that support projects with budgets greater than $25 million to be spent within 5 years and are likely to provide longterm economic and environmental benefits to the province.

In addition, Québec, together with other partners, has recently launched a $90 million fund to invest in new technologies and renewable energy projects.

Information on additional Canadian incentives can be found at: www.ecoaction.gc/ecoenergy-ecoenergie/index-eng.cfm

Conclusion

This bulletin has highlighted some of the many available U.S. and Canadian government incentives for businesses that reduce GHG emissions. You are likely to find similar incentives in your own jurisdiction. In time, we believe these incentives will increase as governments continue to encourage state and province wide emission reductions while helping businesses adapt to a carbon-constrained world.