Energy tax credit and incentives for energy efficiency: how does it all work?

As we move globally towards a cleaner, greener future that preserves our planet, it’s vital to reconsider how we use energy and fuel in modern society. From homes across the nation to large-scale commercial energy consumers (such as the transport, industry and farming sectors), it’s vital that we make tangible change to our fuel consumption habits. Across the UK, the US and Canada, governmental bodies offer various incentives and tax credits to boost this change. Here, we’ll take a closer look at them.

What financial incentives for energy efficiency are out there?

As we look to better protect the planet by reducing our greenhouse gas emissions, governments have recognised the importance of incentivising homes and businesses to become as energy efficient as possible.

The UK government recently announced the Green Homes Grant, providing home owners and landlords with £5,000 to £10,000 in vouchers to make energy saving changes in the home. Note: these vouchers do not cover solar photovoltaic panels but they do cover solar thermal panels for domestic hot water heating.

In the US, tax credits for high energy efficiency in residential properties have been retroactively extended, up until the end of December 2021. Furthermore, tax credits for those who build energy efficient homes have seen this same retroactive extension come into force.

In addition, home owners who install renewable energy products in their residential properties can also access tax credits up until the end of December 2021.

In Canada, there are currently 77 clean energy incentive programmes running across the country. All in all, these make 285 energy efficiency rebates, 27 renewable energy rebates and 12 clean transportation rebates available to homes and businesses.

At home, insulating your walls and attic is essential for high energy efficiency. Go further by installing a Netatmo Smart Thermostat to regulate and adjust your home heating, increasing your energy efficiency and reducing your heating bills!

Energy efficiency credits: the case for business

Business energy efficiency credits in the UK

In the UK, environmental taxes are in place to ensure that businesses work to be as environmentally friendly as possible in their operations.

There are schemes in place for various business types, including companies that use a large amount of energy because of the type of work they do, small businesses that use only minimal amounts of energy and businesses that actively seek to purchase energy efficiency technology for their operations.

The CRC Energy Efficiency Scheme (which was previously known as the Carbon Reduction Commitment) covers large-scale businesses that do not use large amounts of energy. These include:

  • Supermarkets
  • Hotels
  • Water companies
  • Banks
  • Local authorities, which includes schools funded by the state
  • Central government departments

As part of the CRC Scheme, these entities must:

  • Register for the scheme
  • Monitor and report their CO2 emissions from their use of gas and electrical power
  • Purchase enough allowances to cover their annual emissions

In the UK, your business can claim capital allowances when you purchase energy efficient technology for your business activities, or you invest in technology that has low or zero carbon emissions.

This will reduce the negative environmental impact of your business overall, so entitles you to a reduction in business tax. As such, it’s a wise move to invest in environmentally conscious technology, as the initial investment may soon be offset by the reduction in the amount of tax that you’re required to pay.

Business energy efficiency credits in the US

In the US, the Business Energy Investment Tax Credit (ITC) applies to various sectors:

  • Commercial
  • Industrial
  • Utility
  • Agricultural

Eligible technologies include solar water heat, photovoltaics, wind and biomass, among many others.

There are tax deductions available for commercial buildings that show high levels of energy efficiency, too. These have also been retroactively extended through to the end of December 2021.

Business energy efficiency credits in Canada

There are various federal incentives for energy efficiency in place in Canada, although the government usually funds the provinces and territories to bring in their own schemes.

Once such federal scheme is the Federal Tax Incentive for Clean Energy Equipment:

  • Businesses can fully expense the generation of clean energy
  • Businesses can also fully expense the purchase of energy efficient equipment
  • This entails a Capital Cost Allowance (CCA) rate of 100%
  • It also entails the abolishment of the associated 1st year rule

How can you claim financial rebates for energy efficient installations?

In the UK, you can apply for and claim business tax credits via HM Revenue & Customs as part of your regular taxation procedure.

In the US, you can visit the Database of State Incentives for Renewables and Efficiency in order to view the energy efficiency credits available for your home or business based on your location.

In Canada, you can research financial incentives for domestic energy efficiency, for transportation and alternative fuels, for buildings, for industry and for products via the Government of Canada website.

Search by province, as rebates and incentives may vary based on your national location.

Incentives for energy efficiency: additional points to note

In the UK, the only funding currently available for home solar panels is under the SEG scheme, which came in on the 1st of January 2020.

If you want to power your UK home heating using solar thermal panels, you could also benefit from the RHI scheme. However, this scheme is scheduled to end in March 2021 (the main aim of the RHI was to encourage home owners and landlords in the UK to switch from traditional, high emissions energy sources to renewable energy sources to power their heating).

In the US, tax credits for renewable residential energy products have been reduced for fuel cells, small wind turbines, geothermal heat pumps and solar energy systems.

Increasing our energy efficiency is vital to protect the planet - financial incentives are just the icing on the cake! Benefit from these tax credits and financial rebates while you make significant changes to your home or business setup to safeguard the future of the globe.