Up in smoke
Creative Commons License photo credit: James Jordan
If Congress doesn’t do it, the Environmental Protection Agency (EPA) will, that is, they will severely restrict Greenhouse-Gas emissions for large industrials. Consider the impact of the following scenarios on your company’s potential investment in plant retrofit requirements:

  • EPA’s proposed requirements for new, large industrial facilities and existing ones (power plants, factories oil refineries, etc.) undergoing modifications to use the most up-to-date technology to curb carbon-dioxide emissions. Without the use of the most up-to-date technologies, facilities could be denied regulatory permits to operate
  • EPA’s potential re-instatement, by November 2011, of the Clean Air Act’s “Maximum Achievable Control Technology” (MACT) emission standard for hazardous air pollutants such as mercury, arsenic, cadmium, other heavy metals, acid gases and dioxins
  • Waxman-Markey proposed bill would require reductions of greenhouse gases (GHG) from 2005 levels of 3% by 2012, 17% by 2020, 42% by 2030 and 83% by 2050

Potential Impact of Regulations on Industry and Industry R&E

The potential impact of these regulations will be significant on electric utilities and other industrial facilities. One outcome, if coal is to be maintained as a significant source of fuel, will be an investment in research for:

  • Testing and modification of existing technologies to achieve optimal application and performance with existing coal-fired plants/units
  • Investment and development of new technologies to achieve carbon and other GHG emission requirements for future years
  • Investment and development of new designs and incremental improvements to today’s coal-fired designs to achieve greater efficiency rates (burn less while increasing output) and increase emission capture rates

It is unlikely that coal will cease to be an integral part of the fuel mix in the U.S. and abroad. As a result, companies, in particular, fossil fuel heavy utilities, should pay close attention to the pending legislation/EPA requirements. With regard to the R&E Tax Credit, the investment and research that is ongoing and will continue for the next decade or two should provide significant R&E benefit. Recommended steps companies can take in anticipation of these efforts include:

  • Tax and Engineering planning and budgeting sessions to better understand future projects
  • Tax involvement in contract review process to ensure that appropriate language is included to identify research areas to be performed on the company’s behalf by vendors/contractors
  • Active engagement between project management and tax to ensure proper cost accounting techniques are being used that can effectively track the research spend
  • Establish data repositories for technical support of research being performed to substantiate your R&E claim

In summary, investment in research for more coal efficient and GHG capture efficient technology and technology application will continue for the time to come. More integrated planning between engineering, project management and tax in these areas should ensure your company’s ability to realize the R&E tax benefits associated with this work.

About the Author:
Greg Lormand is Director, Tax Services for BCP Engineers & Consultants where he concentrates on supporting clients on niche’ tax areas such as Research & Experimentation (R&E). Mr. Lormand has a BS degree in Mechanical Engineering and Masters Business Administration from Louisiana State University.

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