Energy Efficiency in Manufacturing Policy & Incentives

Manufacturing typically consumes 25-27% of a country’s total energy supplies. Because of this, governments provide energy efficiency incentives to promote adoption of green practices. However, incentive schemes can be difficult to understand. This article will help you understand and navigate energy efficiency policy & incentives for the manufacturing sector.

In this article we will cover:

• Different types of Government Energy Efficiency Incentives and How they Work
• An example of energy efficiency incentives policy: Ireland

 

Different types of Government Energy Efficiency Incentives and How They Work

When it comes to incentivising energy efficient practices, the government has many levers to pull. 

Some government policies are more direct, providing funds directly in the hands of manufacturers. Other policies are more subtle and indirect, such as tax incentives or education programmes.

Government incentives typically come in one of the below 5 different forms:

1. Grants and Rebates
2. Performance-based Incentives
3. Tax Incentives
4. Loan Programmes and Financing Options
5. Educational or Training Programmes

 

Grants and Rebates for Energy Efficiency in Manufacturing 

Grant and rebate programmes directly provide government funds to businesses for the purposes of subsidizing the costs to undertake specific energy efficiency steps. In both instances, businesses must submit applications in order to be considered for funds. Governments receive the applications and make decisions about which businesses meet the criteria for funding. The difference is that for grants, funds are provided before a manufacturer has embarked on an energy efficiency programme, whereas with rebates, the funding comes after. Grants and rebates for energy efficiency projects  are typically one-off affairs. A business that receives a grant or rebate is generally not eligible to receive the funds  a second time. 

 

Performance-Based Incentives 

Performance-based incentives are distributed to those businesses that achieve specific energy efficiency targets or outcomes.  Governments set the criteria for compliance, and businesses provide proof of their achievements to receive funds. Performance-based incentives are similar to rebates in that funds are distributed after actions are taken. The difference is that rebates are generally provided for simply undertaking actions, while performance-based incentives are provided for achieving results.  Unlike grants, businesses can apply for and receive performance-based incentives in an ongoing manner; A manufacturer can qualify for a performance-based incentive for each year in which you qualify.

 

Tax Incentives for Energy Efficiency 

A tax incentive is a mechanism that encourages energy efficiency by lowering the tax burden of businesses that undertake particular measures or achieve certain goals. They typically come in the form of either tax relief (also known as  tax deductions) or tax credits. Tax relief or tax deductions lower a businesses’ tax burden by reducing the total amount of income that is considered “taxable”.  Businesses generate income, and then owe taxes based on how much income they make.  A tax relief scheme allows businesses to subtract certain sums from the total amount of money that is considered “income”. And then the business pays tax based on that reduced total amount. In this way, tax relief indirectly reduces the total amount of taxes that a business pays. Tax credits, on the other hand, are direct reductions in the amount of tax a business owes. Governments use both tax relief and tax credits to incentivise businesses to adopt energy efficient practices. Tax incentives, like performance-based incentives, are recurring mechanisms. Manufacturers can receive tax relief or tax credits for every year in which they qualify.

 

Loan Programmes 

Governments sometimes leverage loan financing programmes to provide capital to manufacturers for investments in energy efficient equipment or practices. Loan programmes can take the form of direct loans, or loan guarantees.

 

Direct Loans

In direct loans, manufacturers submit applications to government departments, and the government itself provides the funds for the loan. Manufacturers then make loan repayments directly to the government department which originated the loan. Government loans typically carry below-market interest rates, so that repayments are lower. Governments incentivize energy efficiency in manufacturing by making below-market-rate loans available to manufacturers for specific energy efficiency projects or equipment.

 

Loan Guarantees

Loan guarantees are different; less direct. In the case of loan guarantees, private lenders provide the funds, while the government acts as a guarantor for the loan. This means that if the manufacturer defaults on the loan, the government will assume the debt obligation.  A government loan guarantee lowers the risk of non-payment to the private lender. Because of this, private lenders are able to offer government-guaranteed loans at lower rates. Governments incentivize energy efficient manufacturing by providing guarantees for loans that are meant to fund energy efficient equipment and practices. This reduces the ultimate cost of the equipment to the manufacturer.

 

Education and Training Programmes 

A well-trained workforce is essential for implementing and maximizing the benefits of energy-efficient practices. Governments can collaborate with educational institutions and industry associations to develop training programs and certifications focused on energy management and sustainable manufacturing practices. By equipping workers with the necessary skills and knowledge, manufacturers can effectively implement energy-saving measures, optimize operations, and achieve long-term sustainability goals.

 

Example of Energy Efficiency in Manufacturing Policy: Ireland’s Approach 

In Ireland, the government has implemented various regulatory incentive schemes aimed at promoting energy efficiency within the manufacturing industry. These initiatives are designed to encourage businesses to adopt sustainable practices, reduce their energy consumption, and lower their carbon footprint. See below for some of the key regulatory incentive schemes currently in place

 

SEAI EXEED Grant Scheme 

The Sustainable Energy Authority of Ireland (SEAI) offers the EXEED Grant Scheme to help Irish businesses fund energy efficiency projects such as heating, cooling, refrigeration and manufacturing processes. SEAI EXEED is an example of a grant scheme: Businesses submit applications to SEAI (an Irish government entity) to appeal for direct financial funds. These funds do not need to be repaid. Qualifying applicants can secure up to €3M per project through the scheme. You can learn more about the SEAI EXEED Grant Scheme here. 

 

SEAI Accelerated Capital Allowance (ACA) 

The SEAI Accelerated Capital Allowance (ACA) scheme is an example of a tax incentive programme.  Specifically, the ACA scheme is a tax relief scheme, in that it helps you lower the amount of your income which is considered “taxable”.  The ACA scheme allows sole trader or corporation manufacturers to deduct the full cost of energy-efficient equipment from their taxable income during the year in which the equipment was purchased. To qualify, the equipment that is purchased must be on the SEAI’s list of approved energy-efficient equipment.  SEAI’s list include equipment such as lighting, HVAC, mechanical systems and BEMS systems such as Mavarick’s machine monitoring and energy management systems.

 

SEAI Support Scheme for Energy Audits 

The Irish government entity SEAI also provides a grant scheme that specifically provides funding for energy audits. Again, this is a grant mechanism, so manufacturers must submit an application to receive the funding. But again, as a grant scheme, any money provided through the scheme does not need to be repaid. An energy audit is a thorough investigation of a manufacturing operation’s usage of energy, with a special eye for identifying the most impactful energy efficiency priorities.  For a full understanding of what an energy audit is and how they proceed, see What is an Energy Audit in Manufacturing.

 

SBCI Energy Efficiency Loan Scheme 

The Strategic Banking Corporation of Ireland (SBCI) is in fact an entity of the Irish government (despite having the word “corporate” in its name). The SBCI was formed to ensure that Irish businesses could access funding even when the private sector could not or would not offer it. SBCI offers an Energy Efficiency Loan Scheme to help manufacturers fund projects to help them reduce their energy draws. The SBCI’s loan scheme is an example of a loan guarantee program. Businesses submit applications directly to the SBCI website, and if approved, receive a certificate of approval from SBCI. The business then provides this certificate to private lending institutions within the regular course of applying for a loan. If approved by the private lender, the manufacturer can then avail of below-market interest rates to fund purchases of approved energy-efficiency equipment. A list of approved energy efficiency equipment can be found on the SEAI website. The list includes Energy Management Systems (EMS) like those offered by Mavarick. 

 

Enterprise Ireland’s Green Transition Fund 

The Green Transition Fund is a set of multiple grants, all managed under a single banner by Enterprise Ireland. In all, there are 10 different grants available. Each grant aims to spur action within a different area of energy efficiency or sustainability in business. The grants can help businesses of all sizes and in all stages of sustainability. There are grants to help manufacturers learn about environmental best practices, through training or consulting teams. Capital investment grants can help factories reduce carbon emissions from manufacturing combustion practices. There is even a grant to help manufacturers fund the cost for Energy Monitoring & Tracking systems (Mavarick’s EMS solutions fall under this category). Manufacturers apply to Enterprise Ireland for one or more of the grants. Enterprise Ireland manages approvals, even though the funding ultimately comes from the EU’s Recovery and Resilience Facility. For the most comprehensive rundown of energy efficiency policies in Ireland, see the Citizens Information site on Supports for Businesses Going Green. For a comprehensive look at energy efficiency in manufacturing, see Mavarick’s Energy Efficiency in Manufacturing: A Complete Guide