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ESG tax incentives, credits and government financial assistance awards (e.g., grants, cooperative agreements and government loans) can fundamentally change how companies implement their sustainability strategies.
As your company seeks to reduce its carbon footprint, it’s likely to consider multiple projects across the enterprise. Company leaders will have to make some tough calls on which ones to fund. Tax incentives, credits and financial assistance awards, including the ability to combine these opportunities, should be key inputs in the decision-making process because they can affect how much a project will cost, the optimal location and the potential return on investment. The recent expansion and extension of investment and production tax credits in the United States could, for example, reduce the cost of solar and onshore wind by as much as 60% and 1.8 cents/KWh, respectively, while a grant may provide as much as 50% of the eligible costs. A project that might not seem viable at first glance could be once these variables are added to the equation.
Yes, it can be difficult to take full advantage of these funding opportunities. Your company’s decarbonization plan may be highly localized while also having assets in many cities, states and countries. You need visibility into your entire operations when considering the costs and benefits of projects such as installing solar panels, pursuing thermal decarbonization, switching to a fleet of electric vehicles or investing in low-carbon manufacturing.
The decarbonization market is similarly localized. Cities and states across the country have plans to reduce greenhouse gas emissions that typically include a combination of tax incentives, tax credits, financial assistance and new rules aimed at changing the behaviors of companies that operate there. Each city or state can take its own approach to incentivizing sustainability by focusing on certain tactics, enacting regulations and setting deadlines. As companies develop their emission reduction targets, they need to view their goals in the context of complying with the rules and regulations where they operate.
A flexible sustainability strategy is key as more cities and states — as well as other countries — announce decarbonization plans. Geospatial analytics, natural language processing and data analytics can help your company understand what it needs to do to reduce its carbon footprint, identify decarbonization opportunities by location, and then map those efforts to available tax and financial assistance incentives. By leveraging data and technology, your company can gain new insights into its operations and that can potentially lead to more informed action and unlock competitive advantages and growth opportunities.
When it comes to developing a sustainability strategy, the conversation inevitably turns to questions such as “How much will it cost?” and “What’s the return on our investment?” from business leaders. Tax incentives and credits can alter the answers and potentially shift the way your company achieves any targets it sets by prioritizing certain initiatives and locations over others. These opportunities exist at the federal, state and city levels.
One of the biggest opportunities for companies is the Inflation Reduction Act (IRA), which was signed into law in 2022 and provides an estimated $660 billion in climate and clean energy tax credits. The IRA features significant extensions, expansions and enhancements of numerous energy-related tax credits that are intended to catalyze investments in decarbonizing energy generation and transportation; building energy efficient, low-carbon manufacturing; and in carbon capture. Available credits can be further enhanced when a company satisfies the social objectives of the legislation such as investing in underserved communities, paying fair wages and procuring materials from domestic sources. And there’s even more to understand around the IRA’s provisions, specific conditions companies must comply with in order to claim the credits and key accounting considerations on direct-pay and transferable credits.
States such as New York, Colorado, Illinois and California — and cities such as Los Angeles, Chicago, New York and Seattle — have enacted plans aimed at reducing their economies’ emissions with initiatives such as shifting to renewable energy sources, phasing out gasoline-powered vehicles and updating residential and commercial buildings to be more energy efficient. While tax incentives and credits will help defray the costs incurred by these new rules, companies that operate in these areas will need to understand the compliance implications and weigh the advantages of operating in one locale versus another. These rules are likely to impact companies in certain sectors more than others.
The federal government’s three key legislative actions — Infrastructure and Investments Job Act (IIJA), the CHIPS and Science Act (CHIPS Act) and the IRA — provide billions of dollars in funding for climate-related activities as well as workforce development. The financial assistance programs are diverse and may offer opportunities for direct funding to support your company’s climate-related projects. Critical is being able to identify the programs and the funding cycles as well as developing not only a technical description of your project but emphasizing community benefits and workforce development. Successful pursuit and development of applications, which may have additional compliance requirements, can provide paths to funding related to climate projects, including assessing stacking the grants and tax incentives together for a more robust incentive stream.
If you have international operations, you may also need to be aware of “green” taxes. The European Parliament, for instance, recently adopted several pieces of legislation that aim to reduce greenhouse gas emissions across the European Union. One key development is the Carbon Border Adjustment Mechanism (CBAM), which introduces a levy on the importation of certain carbon-intensive products such as cement, fertilizer, iron and steel, aluminum and hydrogen. It’s important to understand how the CBAM will impact companies that import goods into the region.
Technology can be a powerful tool for collecting, analyzing and ultimately reporting ESG data. When it comes to tax incentives, it can also allow your company to map these funding opportunities to your carbon reduction efforts so that you have a better understanding of your costs, technology needs and the options for achieving your goals. Technology can also help your company stay in compliance with evolving state, federal and international regulations. A strategy for getting the most out of these funding opportunities could follow these steps:
Use technology to build a virtual model of your business that includes data such as resources, assets, customers, suppliers, routes, networks and other important components of your value chain. Location data is key. Leveraging location and the coordinate system can help organize data and models and lead to deeper insights that can inform decision-making. For example, we can help companies identify which domestic locations have the highest IRA tax credits and financial assistance available and then map that against electricity costs, and solar and hail intensity to derive a list of locations that meet your criteria.
Build a tax incentive library into your company’s technology platform. PwC’s Green Taxes and Incentives Tracker, for example, is a tool that allows companies to match project data (location, project type) to the available credit. We can use this tool and other data sets to generate insights that display your company’s value chain and score potential projects based on financial impact given the IRA incentives. In addition, our centralized financial assistance team has the methods and processes to quickly identify financial assistance opportunities that are available and provide a quick and easy report that outlines the opportunity including funds available, timing and application process.
Be prepared to provide supporting materials on any project. The IRA provides bonus credits if certain prevailing wage and apprenticeship requirements are met. Your human resources team or your construction and installation vendors will need to provide wage data in order for your company to claim those credits. The ability to support compliance with the prevailing wage and apprenticeship requirements with a tool such as Global Incentives Solutions allows companies to gain comfort that their credit will be sustained upon audit. This tool simplifies collection of weekly pay records required to be maintained by taxpayers. Our technology also provides insights into whether taxpayer records support the enhanced credit, or if there are areas of noncompliance that can be addressed. In addition, assessing the projects and available financial assistance opportunities may change how you prioritize projects in order to take advantage of government funding based upon timing of availability of such funding in order to increase the funding between tax incentives and financial funding.
Dashboards can keep stakeholders up to date on the progress of projects. These visualizations should also include insights into the tax credit pipeline — status of any open claims, when incentives may be expiring or new ones that have been announced.
We know that companies are running multiple sustainability projects in parallel. To alleviate collaboration, communication or execution issues, your company should consider an operating model that treats sustainability as a material business issue and incorporates associated initiatives into corporate strategy. Doing so will help your company avoid silo-based thinking, slow or limited responses to market drivers, partially-implemented programs and limited awareness across the organization.
The importance of such an operating model is particularly acute when considering the tax incentives and financial assistance programs that can make a sizable dent in the price tag of certain sustainability initiatives. Technology can be a powerful tool in that endeavor, but technology is just that — a tool. The complexity of staying in compliance with new rules and regulations and taking full advantage of available tax incentives, credits and financial assistance is a reminder of how important cross-functional teams can be to sustainability efforts. To do that effectively, your company will need employment, demographic, infrastructure, community, partnerships and geospatial data that will be pulled from teams across the enterprise. Here are some actions your company’s leaders should consider.
Your company may want to consider the benefits of involving a third party to help it understand all of the city, state, federal and international tax incentives, credits and financial assistance opportunities — and the regulations they must comply with to claim them. Ideally, any candidate would have experience in developing and executing sustainability strategies and the capabilities to identify appropriate tax and financial assistance incentives so that your company doesn’t miss out on valuable funding opportunities.