The Clean Technology Investment Program – why being environmentally friendly is now financially friendly

Manufacturing businesses will be eligible for grants to switch to clean technology, under a scheme put forward by the Federal Government.  The Clean Technology Investment Program will earmark $800 million in Federal funding to help businesses to invest in energy efficient capital equipment and low pollution technologies.

In the past, companies may have avoided the transition to environmentally sound practices due to financial constraints.  The costs in upgrading to low emissions technology may have exceeded the benefits to be gained in reduced power bills.  What the Clean Technology Investment Program proposes to do is to remove some of this burden from businesses, with the Commonwealth pledging to contribute funding to projects being undertaken to improve energy efficiency.

Projects that can be supported by grants under this program include switching to less carbon intensive energy sources and installing new manufacturing equipment.

Eligible applicants

An applicant for a grant under the program must be:

• a company incorporated in Australia;
  
  
• non-tax exempt;
  
  
• undertaking manufacturing activities;
  
  
• able to fund the costs of the project that will not be covered by the grant; and
  
  
• in compliance with obligations under the Equal Opportunities for Women in the Workplace Act 1999.

An applicant for a grant under the program must also have met one of the prescribed energy or emissions thresholds in the 12 month period before submitting an application.  These thresholds require that the applicant has:

• used at least 300 mega-watt hours of electricity;
  
  
• used at least five tera-joules of natural gas; or
  
  
• used a mix of fuels and/or electricity that results in the emissions of at least 0.27 kilo-tonnes of carbon dioxide equivalent.

An applicant that is directly liable under the carbon pricing mechanism will also be eligible to apply for grants under the program.

Eligible projects

For a project to be eligible under the program it must be relevant to manufacturing activities and it must create carbon or energy savings.  Such a project could include:

• the replacement or modification of existing facilities;
  
  
• changing the source of energy used by the business; or
  
  
• replacing or modifying existing facilities to manufacture low emissions products.

An example of a project that would be eligible for funding under the program is a manufacturing company replacing high energy consumption machines in its factory for equivalent low energy consumption machines.

A project will not be eligible for a grant under the proposal if:

• it involves no capital expenditure on equipment or plant;
  
  
• it consists of establishing a completely new manufacturing facility, rather than improving an existing one;
  
  
• it is solely a capacity or capability expansion project without planned emissions intensity reductions;
  
  
• it consists of replacing or modifying transportation vehicles  such as trucks; or
  
  
• it is an activity eligible for funding under a different Federal Government scheme (such as the Clean Technology Food and Foundries Investment Program, which applies to the food and foundry industries).

The costs of preparatory pre-project activities can be covered by a grant under the program provided it is done in the 12 months prior to submitting an application.  Examples of eligible pre-project activities are energy audits, feasibility studies and the initial selection of a suitable emissions reduction project.

Similarly, the costs of post-project activities can be covered by a grant under the program provided it is done within 15 months of the project completion date.  Examples of eligible post-project activities are financial audits, engineering calculations and other verification activities.

The maximum project duration is two years from the project commencement date.  If a project will take longer than two years it will not be eligible for funding under the program.

The form of a grant under the program

There is no designated maximum for the size of a grant under the program.  The minimum permitted size of a grant under the program is $25,000.

The nature of funding under the program is that of shared contribution to projects by the applicant and the Commonwealth.  The prescribed funding ratios are:

• up to 1:1 for a grant of less than $500,000, where the annual turnover of the applicant is less than $100 million;
  
  
• up to 2:1 for a grant of less than $500,000, where the annual turnover of the applicant is more than or equal to $100 million;
  
  
• up to 2:1 for a grant of $500,000 or more, but less than $10 million; and
  
  
• up to 3:1 for a grant of $10 million or more (unless otherwise recommended by Federal Cabinet).

The assessment process

Application assessment is conducted by Innovation Australia, an independent statutory body made up of private sector experts.  Applications for grants of $10 million or more must also be referred to Federal Cabinet.

A merits-based approach is taken to assessment of applications for grants under the program.  For an application to be recommended for funding under the program, it must score highly against the merit criteria provided by the Federal Government.  The merit criteria which apply to all applications are:

• the extent of the reduction in carbon emissions intensity, including through improvements in energy efficiency arising from the proposed project (worth 70 points out of 100);
  
  
• the capacity and capability of the applicant to undertake the project (worth 15 points out of 100); and
  
  
• the extent to which the project maintains or improves the competitiveness of the applicant’s business (worth 15 points out of 100).

Applications for grants of $1.5 million or more must also be assessed against a fourth criterion, which is:

• the contribution of the proposed project to a competitive, low carbon, Australian manufacturing industry and the benefits to the broader Australian economy (worth an additional 20 points).

With this fourth criterion, applications for grants of $1.5 million or more are assessed with a merits score out of 120, as opposed to 100.

Applying for a clean technology grant

To apply for a grant under the Clean Technology Investment Program the applicant must meet all of the eligibility criteria.  Whether an applicant meets the criteria will not always be clear on the surface.  Some notable 'grey areas' in the eligibility criteria are whether a company is a 'manufacturing company' and whether a project will meet the necessary energy use outcomes.

Although applications for grants under the Clean Technology Investment Program are ultimately made online, various materials must be prepared before making an application, including:

• evidence of eligibility – showing the applicant’s ability to meet at least one of the electricity, fuel or emissions thresholds and the applicant’s ability to fund its share of the project;
  
  
• a project plan and budget;
  
  
• completing the AusIndustry Carbon and Energy Savings Calculator to identify the carbon and energy savings to be generated by the project;
  
  
• a business case for undertaking the project to show how it will benefit the applicant’s business; and
  
  
• a plan to verify the carbon and energy savings to be achieved through the project.

A successful applicant must enter into a contractual funding arrangement with the Commonwealth.  Funds provided under a grant will be released to the successful applicant periodically upon the completion of agreed project milestones.  Grant payments are typically treated as assessable income for taxation purposes and will be subject to GST.

The Clean Technology Investment Program is already underway, meaning that an application for a grant under the program can be prepared immediately.  The program is scheduled to run until 2017/2018, but the amount of funds available for grants is capped at $800 million.

If your company would benefit in applying for a grant, or if you would like to know more about the Clean Technology Investment Program generally, please contact: