Tax credits

Another factor is the potential economic benefit that may be realized due to possible future environmental regulations from utilizing both waste and virgin biomass as energy resources. Carbon taxes imposed on the use of fossil fuels in the United States to help reduce undesirable automobile and power plant emissions to the atmosphere would provide additional economic incentives to stimulate development of new biomass energy systems. Certain tax credits and subsidies are already available for commercial use of specific types of biomass energy systems (93). 

Several states that have a large number of CPI plants offer various types of tax incentives. Louisiana, for instance, offers a 10-yr tax exemption from property taxes on buildings, equipment, and improvements to land (2). Texas, which has a large petrochemical industry, offers a 7-yr tax abatement program. Neither of these states have a state income tax. Both states offer a tax credit for each job created and provide free worker training. 

The level of benefits from tax credits and favorable power purchase terms that helped give these installations their start has diminished in recent years. Nevertheless, with the remaining tax credits available and given current (ca 1995) natural gas prices, solar-thermal technology can deUver power at 8—12 /kW-h and an installed cost of 2500— 3000/kW. 

In the past, income tax could be reduced by an investment tax credit. This item, designed to stimulate iavestment, was a tax credit amounting to some percentage of the new capital investment ia certain eligible types of production equipment. It was credited when the investment was made and could be used to offset the tax due, until exhausted, for a prescribed period of years. This credit was eliminated ia the United States for most equipment ia 1986, but is frequently advocated for investment stimulation. 

Mfg cost (less depr and int) Capitalized fixed capital Capitalized total capital Operating income Interest on debt Depreciation (Tax basis) Net taxable income Federal income tax Investment tax credit Net income Cash flow... 

Ethyl Tertiary-Butyl Ether. Similar to methanol in the MTBE reaction, ethanol can react with isobutylene to produce ETBE. Which alcohol is used to make the ether is highly dependent on the relative cost of the alcohols. To make ethanol more economically competitive with methanol, the federal tax credit for biomass-based ethanol used in fuel also appHes to ethanol used to make ETBE in the United States (24). 

Applying two important tax credits would improve the early years cash flow and shorten the payback period. A 10% investment tax credit and a 10% energy tax credit applied to the incremental capital costs for the expanders yields nearly 1.0 million additional first-year cash... 

The cash taxes due are calculated by multiplying the book net income before tax, times the tax rate, then adjusting for deferred tax and tax credits, if any. 

At times, tax laws allow a 10% investment tax credit for certain qualifying facilities. Thus, 10% of the qualifying investment can be subtracted from the first 85% of the FIT due. If the taxes paid in the first year are not enough to cover the investment tax credit, it can sometimes be carried forward for several years. 

As can be seen in Table 2 all revenues less expenses associated with selling are summed in Row 17. All expenses including noncash expenses such as depreciation, amortization, and depletion are summed in Row 30. The net profit before tax, Row 32, is obtained by subtracting Row 30 from Row 17 and making any inventory adjustment required. Row 34 is the cash taxes that are to be paid unless offset by investment or energy tax credits in Row 36. The deferred income tax is shown in Row 35. The deferred tax decreases the net profit after tax in the early years and increases the net profit after tax in later years. The impact on cash flow is just the other way around as discussed later. Row 37, profit after tax, is obtained as foliow s ... 

The impact of loss of tax credits, loss carry forward, and other tax benefits should be studied. Such things as start-up problems that increase the first year s operating costs and reduce the production should also be studied. With a good economic computer program, such as described earlier, all of these sensitivity analyses can be made in an afternoon. 

Tax credit tor electricity production from wind and closed-loop biomass 0.4... 

Subsidies represent an often hidden financial benefit that is given to particular energy sources by government institutions in the form of tax credits, research and development (R rD) funding, limits on liability for certain kinds of accidents, military spending to protect Middle East oil supply lines, below-market leasing fees for use of public lands, and other... 

Tax credits were provided for solar water heating systems in response to the energy crisis. After tax credits expired, the solar water heater business declined drastically. The only segment of solar water heater market that has continued to have growth is the pool heater. 

Periodically Congress has permitted the use of tax credits as a direct reduction from income taxes. Examples are tax credits for installing energy conservation devices, use of alcohol fuels and electric vehicles, development of orphan drugs, creation of low-income housing, and some research expenditures. Tax credits have been used historically to stimulate capital investment in the United States. Such deductions are more valuable than depreciation because they represent direct deductions from the tax bill after taxes are computed on income. 

Suppose you are asked to evaluate the purchase of the multicone cyclone referred to in Example 3.4. The capital investment is 35,000 (see Example 3.4), and the equipment has a class life of 5 years, after which it will be sold for the salvage value of 4000. The income stream generated by the machine is on line A in Tables EB.5A and EB.5B. As the equipment ages, its operating and maintenance costs increase, and line B lists the expense profile. Assume a tax rate of 35 percent with no investment tax credit. Evaluate two possible scenarios (a) 100 percent use of equity and (b) 100 percent debt financing. Use straight-line depreciation for debt financing, for simplicity assume equal annual payments (principal plus interest) to the lender for the 5 years at a rate of 10.5%. 

---