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Monday, October 19, 2009

The importance of green building effect

Environmental issues and climate change have marched into the mainstream of popular, political and business thinking over the last year worldwide.

As individuals, corporations and governments alike take more cencerted action to help "Mother Earth", governments are often seen as the catalyst in spearheading this initiative by way of legislation. In the UK, for example, the introduction of the Climate Change Act 2008 has mapped out the direction of the government's policy.

But what types of legislation are effective in initiating change, particularly among companies?

PricewaterhouseCoopers in the UK conducted a survey of top UK and international companies to understand businesses' views of the government's use of tax and regulation to manage the environmental impact of business. Some of the more salient observations from the "Saving the planet - can tax and regulation help?" survey were:

* Regulation is seen as being the government's most effective tool to change business behaviour;

* Taxes that tackle specific market failures, such as climate change levy, are viewed as effective in shifting corporate behaviour, while taxes that were either not originally designed to tackle environmental issues, such as fuel duty, or are less explicitly linked to polluting behaviour, such as air passenger duty, are seen as being far less effective in changing corporate behaviour;

* Businesses believe that tax incentives could be an important tool in encouraging a change in their behaviour and want to see the government offer more and better designed incentives.


The survey findings clearly indicate that while governments must drive the initiative, they must also bear in mind the preference by businesses for "carrot" incentives over "stick" penalties in changing corporate behaviour. It is important that the incentive framework is not onerous or complex, lest it fails to motivate changes in behaviour. Moreover, the framework must be sufficiently potent to generate a multiplier impact on the change behaviour of the larger community.

One area of focus is the building industry. Buildings alone account for nearly one-third of the energy used globally and, if appropriately incentivised, could create the impact we seek on environmental change behaviours.


In Malaysia, our corporates are embracing green initiatives more keenly and an upshot of this is the proliferation of green buildings. The recent establishment of the Green Building Index (GBI) is a key milestone. Incentives such as higher plot ratio and better land premium rates to promote the development of green buildings are currently being explored.

These are well and good, but if we are to look at the tax incentives for green buildings, we would find that they are scarce and not "potent" enough. Currently, the tax incentives are mainly geared towards spending on energy-efficient assets by way of investment tax allowance.

It should also be noted that green building initiatives do not stop at just the installation of energy-efficient assets. It encompasses the way the building is designed and constructed, site planning, innovation and resources used. The building must be sustainable and can provide energy savings, water savings, a healthier indoor environment, better connectivity to public transport and the adoption of recycling as well as the greenery of the project.

While it is true that, generally, adopting green thinking and technology would be costly and may not be attractive for building owners, especially if the return on investment is too long, injecting the right "carrots" to the right sectors should drive the green initiatives, notwithstanding the high investment or cost of moving towards green technology.


The government's endorsement of green buildings in a more holistic manner will positively impact the developers, property owners, consumers and suppliers to think and act green.

Granting greener tax incentives which are pegged to the type of building certifications such as the GBI or the likes will impact the entire building supply chain: from building owners and suppliers right up to consumers. Given the size of the property industry, incentives such as investment tax allowance or even industrial building allowances for green-certified buildings will be impactful.

We don't need to look far for examples. Across the causeway, the Singapore government uses both the "stick" approach of requiring green certification for buildings and the "carrot" approach of incentives such as grants to building owners and accelerated tax depreciation for energy-efficient equipment. Australia also provides incentives such as interest-free "Green Loans", grants and rebates to encourage greener living.

In Malaysia, using incentives as a tool to stimulate a change in behaviour will probably be preferred over the "stick" regulations. The introduction of regulations will likely give rise to a host of compliance issues before the community is ready or makes a conscious effort to go green. As a start, the government may want to invest with businesses to change behaviour in protecting Mother Earth.

As the politican and environmentalist Peter Garrett said: "Climate change is such a huge issue that it requires strong, concerted, consistent and enduring action by governments."

Peter Wee is an executive director at PricewaterhouseCoopers Taxation Services Sdn Bhd.

By Business Times (by Peter Wee)

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