Building Your ESG Narrative: Using Tax Equity

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This material has been prepared for informational purposes only. We aim to facilitate putting you in touch with tax advisors and renewable energy project advisors to help make Tax Equity a reality. You should consult your own advisors before engaging in any transaction.

In recent weeks, we have covered some of the methods of furthering your organization’s Environmental, Social, and Governance (ESG) narrative – namely, by leveraging renewable energy certificates (RECs) and virtual power purchase agreements (VPPAs).

Another slightly more involved clean energy initiative is tax equity. It remains among the most effective ways for organizations mining cryptocurrency to demonstrate their positive impact on clean energy production while reducing their tax burden.

Here is a closer look at the current demand for tax equity, how it started, and how organizations like yours can use it to strengthen your ESG positioning.

Driving the demand for renewable energy

For over 15 years, the U.S. government has provided subsidies and incentives like tax equity to accelerate investment in renewable energy infrastructure, which is a trend only expected to continue. There is typically bipartisan support for incentives like renewable energy tax credits to wind, solar and other technologies because of the job creation and positive economic benefits that they can bring to a community regardless of political affiliations.

Under the current Biden administration, support for renewable energy is expected to accelerate and it is also likely that there will be an attempt to increase corporate tax rates as a partial means to pay for this and other initiatives. This means companies should think about their tax strategies now more than ever. The administration has most recently proposed raising corporate tax rates from 21% to 26.5%.

This creates an opportunity for investors to expand their ESG narratives with the added benefit of a reduced tax burden. The public is increasingly conscious of sustainability and of the influence that businesses and corporations play in that arena. This is especially true for crypto mining operations, which have come under scrutiny due to the environmental impact bitcoin mining can have on the environment.

The negative perception surrounding mining operations is that they only care about the lowest-cost power supply with no regard to the source or impact on the environment. The fact is most miners have a much longer-term view and recognize that in order to be well received by the community and to thrive in the industry in today’s world, they must source energy in the most responsible and sustainable way possible. This is where tax equity can be an appealing solution for organizations mining bitcoin.

The origins of tax equity

The primary incentives used by the U.S. government to promote growth in the renewable energy industry are investment tax credits (ITC) for solar and production tax credits (PTC) for other technologies like wind and geothermal. These credits can incentivize investments in renewable energy infrastructure by allowing investors who invest in newly constructed projects to use the credits and associated accelerated depreciation to offset their taxable income and thus reduce their tax liability.

Major investment groups like banks, insurance companies, and big corporations have long used tax credits to reduce their federal and state tax liabilities while also providing much needed capital for projects promoting clean energy. The incentives are popular because they can bring benefit to communities by creating jobs that can stimulate the economy in rural areas. According to Solar Energy Industries Association (SEIA), “The ITC has proven to be one of the most important federal policy mechanisms to incentivize clean energy in the United States.”1

As a tax equity investor, you own the clean energy assets and can pinpoint where in the country you are generating renewable energy and the accompanying jobs. You can even go a step further by entering into a VPPA with renewable energy sources to sustainably produce renewable energy for your own consumption needs. This kind of activity holds up to scrutiny when asked about your efforts to offset non-renewable energy consumption.

Advantages of using tax equity

Tax equity serves as an effective solution for those looking to further their ESG story. It is not a strategy centered around avoiding tax obligations, but rather a way to direct the tax dollars that you would otherwise pay specifically towards a clean energy initiative. Therefore, tax equity can become a customizable solution that can help support a company’s clean energy commitment.  In summary, tax equity can satisfy sustainability initiatives and be a smart tax planning tool to provide valuable tax savings.

Build your ESG narrative with Compute North

Compute North is playing a leading role in the industry-wide shift toward sustainability and renewables. If you are currently colocating your equipment with us, you have an opportunity to explore tax equity with Compute North and PowerFund One. Investing in renewables is not only a thoughtful way to make a difference toward a more sustainable energy future, but it also provides companies with a valuable tool to improve their overall ESG goals.

Our TIER 0™ data centers offer flexible power consumption and are therefore ideal solutions to provide stability to today’s energy grid and bridge to tomorrow’s energy infrastructure with more renewable energy sources fueling the future energy needs. This flexibility, known as demand response, allows energy suppliers to more effectively manage intermittent supply like solar and wind with interruptible demand like our TIER 0™ data centers. 

Contact us today to start exploring Tax Equity for your operation.

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