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7/29/2019 Taxing Carrots and Sticks: incentivising efficiency through property taxes
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Taxing carrots and sticks:
Incentivising efficiency through property taxes
Darryl CroftDirector
World Sustainable Energy Days 2013Wels, Austria
27 February 2013
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Outline
Key barriers to uptake of energy efficiency
Use of Energy Efficient Stamp Duty (EESD)
Integration with financing approaches
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Why lack of motivation for EE?
Key Barrier 1
Energy efficiency
doesnt add value to
property
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Why lack of motivation for EE?
Key Barrier 1
Energy efficiency
doesnt add value to
property
Energy
efficiency
measures must
pay back
through fuel billsavings
7/29/2019 Taxing Carrots and Sticks: incentivising efficiency through property taxes
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Why lack of motivation for EE?
Key Barrier 1
Energy efficiency
doesnt add value to
property
Key Barrier 2
Period of occupancytypically shorter
than lifetime of
measures
Energy
efficiency
measures must
pay back
through fuel billsavings
7/29/2019 Taxing Carrots and Sticks: incentivising efficiency through property taxes
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Why lack of motivation for EE?
Key Barrier 1
Energy efficiency
doesnt add value to
property
Key Barrier 2
Period of occupancytypically shorter
than lifetime of
measures
Energy
efficiency
measures must
pay back
through fuel bill
savings
Risk over pay-
back: Expensive
measures
excluded, risk
over cheaper
measures
7/29/2019 Taxing Carrots and Sticks: incentivising efficiency through property taxes
7/18
Why lack of motivation for EE?
Key Barrier 1
Energy efficiency
doesnt add value to
property
Key Barrier 2
Period of occupancytypically shorter
than lifetime of
measures
Energy
efficiency
measures must
pay back
through fuel bill
savings
Risk over pay-
back: Expensive
measures
excluded, risk
over cheaper
measures
Finance
mechanisms
(eg. UK Green
Deal)
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Why lack of motivation for EE?
Key Barrier 1
Energy efficiency
doesnt add value to
property
Key Barrier 2
Period of occupancytypically shorter
than lifetime of
measures
Energy
efficiency
measures must
pay back
through fuel bill
savings
Risk over pay-
back: Expensive
measures
excluded, risk
over cheaper
measures
Property taxes
(e.g. Purchase,
Municipal)
Finance
mechanisms
(eg. UK Green
Deal)
7/29/2019 Taxing Carrots and Sticks: incentivising efficiency through property taxes
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Stamp Duty Land Tax
Charged as a percentage of the value of property purchased
Up to 125,000 Zero125,001 - 250,000 1%250,001 - 500,000 3%500,001 to 1 million 4%
Over 1 million 5%
Precedent for using SDLT to deliver additional objectives:
From 2010, 0% rate extended to properties worth up to 250,000 for firsttime buyers
Since 2007 all new Zero Carbon homes are fully exempt from SDLT
Proposal: Use SDLT to address first barrier:
Adjust rate of SDLT paid by the purchaser based upon the energy efficiency ofproperty being bought = Energy Efficient Stamp Duty (EESD)
www.ukace.org
7/29/2019 Taxing Carrots and Sticks: incentivising efficiency through property taxes
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An Illustration
300,000
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-1.5 -1.0 -0.5 0 +0.5 +1.0 +1.5300,000300,000
An Illustration
EPC Band B EPC Band E
Standard SDLT: 3% 3%
EE adjustment: -1% +0.5%
Final rate: 2% 3.5%
Cost: 6,000 10,500
Stamp Duty Land Tax adjusted based on EPC rating
A B C D E F G
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Theoretical Impact
EE property requires 4,500 lower tax payment
EE property more attractive to purchaser since invokes a lower tax
payment
EE property has increased value as a result
Incumbent household has confidence that improving efficiency will
increase value
Household chooses to invest in energy efficiency immediately: inaddition, they benefit from lower fuel bills until point of sale
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Installation costs vs tax reduction
For 44% of households SDLT reduction would exceed the installation cost
required to move up one EPC band
80% when including 5 years of fuel bill savings
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Financing with Energy Efficient tax
Case becomes compelling when twinned with financing
mechanism:
removes upfront capital requirement
Energy Efficiency Stamp Duty is a motivation, encouraging energyefficiency take-up via Green Deal
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Financeable improvements
EPC ratings of English homes under financing scenarios:
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Relevance for financing
Concern is that a finance charge will be viewed negatively by
purchasers i.e. depress house price.
Energy Efficient tax is designed to increase value of efficient
properties: may have a finance charge attached but willinvoke a lower tax payment
=> Efficient properties with finance are more attractive
improving efficiency through the Green Deal seen as adding
value.
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Conclusions
Reflecting energy efficiency in value of property is desirable
merely reflects running costs
EE property taxes are a mechanism that could help deliver this
Could drive uptake of finance mechanisms
Would address the perceived concern that a property with
finance is unattractive due to repayment charge
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- For further details see:- Croft and Sunderland (2011)
Addressing Key Barriers in the Delivery of Domestic Energy Efficiency
Improvements - The Case for Energy Efficiency Property Purchase Taxeshttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdf
- Croft and Preston (2013)
Taxing carrots and sticks: Incentivising efficiency through property taxes
Thank You
Darryl Croft
Director, Abelscroft EI
http://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfmailto:[email protected]:[email protected]://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdfhttp://www.ukace.org/wp-content/uploads/2011/07/ACE-Research-2011-06-5-214-Croft.pdf
