Property tax assessment incentives for green building: A review

Renewable and Sustainable Energy Reviews 60 (2016) 536–548

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Renewable and Sustainable Energy Reviews journal homepage: www.elsevier.com/locate/rser

Property tax assessment incentives for green building: A review S.A.A. Shazmin, I. Sipan n, M. Sapri Centre for Real Estate Studies, Faculty of Geoinformation & Real Estate, Universiti Teknologi Malaysia UTM, 81310 Skudai, Johor, Malaysia

art ic l e i nf o

a b s t r a c t

Article history: Received 30 May 2015 Received in revised form 11 November 2015 Accepted 13 January 2016

The development of green building has received the attention of various levels of government around the globe, including from local authorities. There are two main categories of incentives provided by local authorities as a means of encouraging the development of green building, which include financial and structural incentives. It has been found that financial incentives, in particular property tax assessment incentives, have been widely adopted by several Commonwealth countries around the globe including Spain, Romania, Italy, Bulgaria, the United States, Canada, Malaysia and India. The practice of providing property tax assessment incentives within the green building field has been empirically documented by several researchers, in order to encourage the growth of numbers of green building instances at a local level. However, no comprehensive academic study has been conducted to review the effect of this incentive on the development of green building. Therefore the purpose of this study has been to review and discuss the available models and bases adopted, in order to develop this incentive. There are three types of property tax assessment incentive models that have been identified as available for encouraging the development of green building, which include reductions, exemptions and rebates. These incentives were developed based on four identified bases, which specifically include the increased amounts of property tax assessments of completed green buildings, the costs of green components, the rate imposed on property tax assessments, and the level of green certification. The findings identified that most property tax assessment incentive models regarding green buildings were developed on the basis of the value of green components, specifically the increased amount of property tax assessments of green buildings, and the costs of green components. & 2016 Elsevier Ltd. All rights reserved.

Keywords: Property tax assessment Local authority Incentive Initiative Green building Encourages green buildings

Contents 1.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 1.1. The relationship between property tax assessment incentives and green building development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537 1.2. Review of property tax assessment incentive models for green building by countries and states . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 537 1.2.1. Spain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 538 1.2.2. Romania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 1.2.3. Bulgaria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 1.2.4. Italy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 1.2.5. Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 1.2.6. The United States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 539 1.2.7. Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 1.2.8. India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 1.3. The bases of property tax assessment incentive models for green building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 544 2. Discussions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 546 3. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547

n

Corresponding author. E-mail addresses: [email protected] (S.A.A. Shazmin), [email protected] (I. Sipan), [email protected] (M. Sapri).

http://dx.doi.org/10.1016/j.rser.2016.01.081 1364-0321/& 2016 Elsevier Ltd. All rights reserved.

S.A.A. Shazmin et al. / Renewable and Sustainable Energy Reviews 60 (2016) 536–548

1. Introduction The involvement of governments has been regarded as an undeniably effective way of promoting the development of green building [1–5]. Local authorities, as operating under local government, act as not-for-profit organizations whose function is to provide services to society, to control and regulate town planning, to approve applications for planning permission, and to develop and renovate premises. The development of green building can result in various potential benefits to local authorities, including boosting their positive images, increasing property tax revenue, decreasing worker absenteeism, reducing pollution and natural disasters, making savings on management, maintenance, operational, utility and infrastructure costs, and creating job opportunities [6–10]. Two categories of incentives have been provided by local authorities as initiatives to encourage the development of green building development, including financial and structural incentives [11,12]. Financial incentives relate to monetary support, including property tax assessments, grants and development fees. Meanwhile, structural incentives provide technical support, such as marketing, technical assistance, expedited permit processing and density bonuses. Financial incentives, specifically property tax assessment incentives on green buildings, have been widely adopted by several Commonwealth countries around the globe including Spain, Romania, Italy, Bulgaria, the United States, Canada, Malaysia and India. Additionally, the practice of providing property tax assessment incentives for green buildings has been proven to encourage the growth of green building practices at a local level [5,13–15]. However there has been a lack of academic publications comprehensively reviewing the practice of providing property tax assessments as an incentive for green building within these countries. Such a comprehensive review would play a critical role in discovering the grounded basis of each incentive adopted by various countries and states around the globe. This research aims to comprehensively review available property tax assessment incentive models regarding green building, as adopted by various countries and states around the globe. This paper therefore reviews the relationship between the application of property tax assessment incentives and the development of green building, reviews the established and adopted bases used to develop incentive models, and evaluates the bases of the property tax assessment incentives based on their existing application by countries or their individual states. 1.1. The relationship between property tax assessment incentives and green building development The building sector has been responsible for high levels of energy consumption, greenhouse gas emissions, solid waste generation, resource depletion and environmental damage [16]. The increased concerns regarding alarming trends in energy demand, the depletion of scarce earth resources, and significant damages to environment as a result of building construction activities, have all triggered green building movements around the world [17,18]. The Urban Land Institute [19] defines green building as the practice of increasing the efficiency with which buildings use resources, while at the same time reducing their impact on human health and the environment, throughout the building's lifecycle. This can be achieved at the siting, design, construction, operation, maintenance and removal stages. The United States has had the greatest experience in the development of green building. Property tax assessment incentives have been widely provided in the United States since 2009, as a means of encouraging the development of green building [20].

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Clement et al. [21] conducted research in the United States, and found that in terms of financial incentives for green building provided at a local level, property tax assessment is the most offered incentive within the energy efficiency sector. The practise of providing property tax assessment incentives for green building has had a positive impact on the development of green building. Several studies have been carried out regarding this incentive's effectiveness, in regards to the growth of green building. According to an empirical study conducted in Spain by Sanchez and Pablo [19], the adoption of property tax assessment incentives for green building has been proven to encourage the growth of solar thermal energy use in buildings. The study came to the conclusion that the provided incentive has had a positive effect on the growth of green building, having encouraged the installation of solar thermal energy in buildings ranging from 102.245 to 122.389 m2, and more. The result have indicated that the percentage of installed solar thermal energy in squares meters within municipalities that have adopted the property tax incentive has increased from 70.7 to 98.4%. Additionally, Shrimali and Jenner [22] have conducted a study investigating the impact of state government policies on the deployment and cost of solar photovoltaic systems in the United States. The findings have proven that property tax assessment incentives and cash incentives have appeared to increase the number of installed photovoltaic systems in residential properties in the United States. In addition, Pablo et al. [18] arrived at the positive conclusion that providing property tax assessment incentives can be considered an adequate approach, one that is highly visible, and one that involves a significant cost reduction when promoting the development of green building. This study has empirically established that these factors have influenced the decision of Spain's local municipals to adopt property tax incentives on the development of green building. Furthermore, an empirical study conducted by Li and Yi [13] has indicated that local authorities have played a significant role in the development of solar photovoltaic systems. The study has evaluated the effectiveness of the work of state and local level governments in promoting solar photovoltaic development. A regression analysis was carried out on 186 cities in United States. Its findings indicated that local financial incentives, including property tax assessment incentives, have empirically stimulated the deployment of solar photovoltaic systems in buildings. Likewise, Cansino et al. [23] stated in his study that the use of tax deductions, such as property tax assessment reductions, has had the advantage of being an ex-post incentive enabling investors to receive financial compensation after they carried out the installation of green equipment in buildings. Also, Sawin [24] has stated that this type of tax incentive is appropriate, especially in cases where the investment costs are relatively high. These studies have therefore shown that providing property tax assessment incentives for green building can stimulate and encourage growth in the field. 1.2. Review of property tax assessment incentive models for green building by countries and states There are several Commonwealth countries around the globe that have adopted a property tax assessment incentive for green building. It was found that these countries have adopted annual values and improved values within their property tax assessment systems [25,26]. Fig. 1 below presents several countries that have adopted property tax assessment incentives for the development of green building. In Europe there are only four countries, all members of the European Union (EU), who have been identified as having adopted several types of property tax incentives for green building. These

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EUROPE

NORTH AMERICA

ASIA

Spain The United States

Table 1 Property tax assessment incentive bonuses for green building within several provinces of Spain. Autonomous Communities

Municipalities

Percentage of reduction (%)

Andalusia

Seville Malaga Granada Cardova Jaen Huesca Santander Cuenca Guadalajara Avila Soria Salamanca Barcelona Gerona Madrid Vitoria Bilbao Saragossa Palma de Mallorca Sta. Cruz de Tenerife

50 15 50 30 50 50 50 30 30 50 50 50 50 50 40 50 50 50 50 25

Malaysia

Romania Cantabria

Italy Canada

India

Bulgaria

Castile-La Mancha Castile and Leon Catalonia

Fig. 1. Countries that have adopted property tax assessment incentives for green building.

countries include Spain, Romania, Italy and Bulgaria [18,19,23, 27–30]. Meanwhile in North America, the two countries identified as those providing relevant property tax incentives included the United States [20,21,31,32] and Canada [33,34]. There are also two countries in Asia, particularly in South Asia, that have adopted property tax incentives in order to promote the development of green building. These include Malaysia and India [35–37]. 1.2.1. Spain Spain is one European country that has provided property tax assessment reductions for the development of green building, as an initiative that promotes the integration of green components into buildings. Spain is the second largest country in Western Europe and the European Union, and is the fourth largest country in Europe. In Spain, real estate tax (Impuesto de Bienes Inmuebles – IBI) is levied based on property cadastral value, or property value, and its tax rates range from 0.4 to 1.10% for the cadastral value of urban properties, and from 0.3 to 0.9% for the cadastral value of non-urban properties. Such a rate can be increased or decreased by local authorities, depending on the specific locations of properties. According to data provided by the Cadastre Directorate [18] in 2010, 314 out of all 7587 Spanish municipalities have adopted real estate tax reduction bonuses, or property tax assessment reduction bonuses, for green buildings. The population of these municipalities represents 32.2% of Spain's total, as these municipalities contain Spain's largest cities including Madrid and Barcelona. The tax incentive costs are borne by municipalities, and as the central government has not offered any general recommendations in this field, this may explain why only a relatively low number of municipalities have adopted the approach [23]. Spanish local municipals have provided a property tax reduction bonus for the installation of solar thermal energy or photovoltaic systems in buildings. The Royal Decree Law 2/2004 has stated that local government can provide tax reductions of up to 50% for green properties [30]. According to Pablo et al. [18], there are several provinces within Spain that offer incentive bonuses for buildings that have installed solar thermal energy systems. A list of these provinces is provided in Table 1 below. Table 2 presents provinces in Spain that have adopted property tax assessment incentive bonuses on green buildings, as a means of encouraging the development of green building through the promotion of solar thermal energy systems for buildings. According to Sanchez and Pablo [19] in Andalusia, by 2010 there were 53 municipalities out of a total 770 who had adopted this property tax bonus. These municipalities represent 32.50% of the total Andalusian population. These include the municipalities of Seville,

Madrid Navarre Basque country Aragon Balearics The Canary islands

Table 2 Summary of types of property tax incentives provided by states within the United States. State

Types of property tax incentives Exemptions

Alaska Arizona California Connecticut Florida Hawaii Illinois Indiana Iowa Kansas Louisiana Massachusetts Missouri Montana New Hampshire New Jersey New Mexico Ohio Oregon Rhode Island Vermont Texas Virginia Wisconsin North Dakota Colorado Maryland Nevada New York North Carolina South Dakota Tennessee

Reductions

● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

● ●

Rebates

● ● ● ● ● ● ●

Malaga, Granada, Cardova, Jaen and Huesca. The discount percentages provided by provinces in Spain have ranged from 15 to 50%, which varies among cities [19]. The reduction is provided based on the amount of property tax assessment for a particular green building. The application of this bonus reduction is subjected to decisions during installation, including the thermal solar

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collectors which have the corresponding approval of competent authorities. 1.2.2. Romania The Local Authority in Romania, which is Cluj-Napoca, provides property tax assessment incentives for green building. Real estate tax is levied by the local authority in Romania, based on the annual rental value of a property. The eligible green components for these incentives include renewable energy systems, such as solar energy, wind energy, hydro energy, geothermal and biomass energy systems. However, the reduction is applied to the rate imposed on property tax assessment. Cluj-Napoca provides a 50% reduction on the rate, from 0.5 to 0.25% for buildings that are certified under any three of the green certification systems, including Leadership in Energy and Environmental Design (LEED), Building Research Establishment Environmental Assessment Methodology (BREEAM), and the German Sustainable Building Council (DGNB). Buildings entitled to the rate reduction include residential, commercial and industrial buildings [38]. 1.2.3. Bulgaria Bulgaria is providing a 100% real estate tax exemption on renewable energy technology for green building development. Real estate tax in Bulgaria is levied based on property book value, which implies the property value. The amount of tax exemption is equal to the amount of a building's real estate tax [23,27]. According to EuroAce [28], building owners who have obtained a certificate category A, issued under the Energy Efficiency Act and the Building Certificate Regulation, are fully exempt from real estate tax for ten years (art. 24 No.18 b Local Tax Act). Meanwhile, owners who have obtained a certificate category B are fully exempt from real estate tax for five years (art. 24 no. 19 b Local Tax Act). The exemption is only valid for renewable energy sources that are used to impact building energy consumption. This tax incentive has been found to be applicable to all types of green properties. The certificates for energy efficient buildings have been based on ordinance issued by the Bulgarian Ministry of Energy. According to Art. 11 of Ordinance no. RD-16-1057, energy performance certificates cover details including types of building, years of commissioning, total areas, heated areas, the values of integrated energy performance regarding energy consumption, and specific energy consumption for heating, ventilation and hot water for domestic purposes. 1.2.4. Italy Cansino et al. [23] has revealed in his study that in Italy, the rate of ICI (Imposta comunale sugli immobili) or property tax assessment sits at around 0.4 to 0.7%. The basis for the real estate tax utilized in Italy is the market value of properties. However in 2008, under the Budget Law, local municipalities may impose a tax rate lower than 0.4% for properties that have installed renewable energy systems, such as solar energy, wind energy, hydro energy, geothermal and biomass energy system. The reduction is valid for a maximum of five years for all types of energy renewable devices, excluding solar thermal installation. The maximum period for the reduction of solar thermal devices is three years prior to installation. This incentive is only applicable only for residential homes. 1.2.5. Canada Real estate tax in Canada is levied based on a property's market value. In Canada, particularly in British Columbia, a property tax assessment exemption has been provided for green building. The installation of eligible devices, or any green improvements made to buildings, results in a 100% property tax exemption. The exemption is derived from the value or cost of eligible devices, or

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that of improvements that meet Gold or Platinum levels of LEED green certification. This exemption is only valid for seven years. The types of properties entitled to these incentives include multifamily residential, commercial and mixed use buildings [32,33]. 1.2.6. The United States The United States has actively promoted green building through property tax assessment incentives. Property tax in the United States is levied based on property market value, sometimes called true value, just value or actual value. Out of the United States' fifty states, thirty two actively provide property tax assessment incentives for green building, particularly for the development of residential property [31]. 1.2.6.1. Alaska. Alaska provides a full or 100% property tax exemption for residential renewable energy systems, based on the value of the eligible devices. Residential renewable energy systems are defined as systems that use an energy source other than fossil or nuclear fuel, namely wind, hydro and solar power energy sources, that include solar water heaters, solar space heaters, solar photovoltaic systems, and wind, biomass and small hydroelectric systems to produce energy. 1.2.6.2. Arizona. The state of Arizona provides a 100% property tax exemption regarding increased property values, resulting from the installation of renewable energy devices. The eligible renewable energy devices include solar water heaters, solar space heaters, geothermal electric systems, solar thermal electric systems, solar thermal process heaters, solar photovoltaic systems, wind and biomass systems and geothermal heat pumps. They also include heat & power systems, landfill gas systems, daylighting, solar pool heating, small hydroelectric systems, and anaerobic digestion systems. For passive systems to be entitled for exemption, the devices should be clearly designed as a solar energy device, such as a trombe wall, and not merely a part of a normal structure such as a window. In order to qualify for a property tax exemption, the property owner must provide their county assessor with documentation affirming the actual purchase and installation, including the costs of eligible equipment. This documentation must be submitted no less than six months before a notice of the full cash value is issued for the initial valuation year. 1.2.6.3. California. There are two types of property tax incentives provided in California, which include reduction and exemption. 100% exemption is provided on active solar system value, and there is a 75% reduction of system value for dual-use equipment, which is equipment used in active solar energy systems. Qualifying active solar energy systems are defined as those that are thermally isolated from living spaces, or any other area where energy is used, in order to provide for the collection, storage or distribution of solar energy. These include solar space conditioning systems, solar water heating systems, active solar energy systems, solar process heating systems, photovoltaic (PV) systems, solar thermal electric systems, and solar mechanical energy. However, solar pool heating systems and solar hot-tub-heating systems are not eligible for the exemption. 1.2.6.4. Connecticut. In Connecticut, a 100% or fully property exemption is available for renewable energy systems, including solar water heaters, solar space heaters, solar photovoltaic systems, wind, biomass, hydroelectric systems, geothermal heat pumps, combined heat and power systems, fuel cells using nonrenewable fuels, landfill gas, tidal, wave, ocean thermal and geothermal direct-use systems, and fuel cells using renewable fuels. Connecticut provides a property tax exemption for Class I

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renewable energy systems and hydropower facilities generating electricity for private residential use. The exemption is available for systems installed on or after October 1st, 2007, that serve farms, single-family homes or multi-family dwellings limited to four units. In addition any passive or active solar water or space heating systems, or geothermal energy resources are exempt from property taxes, regardless of the type of facility the system serves. Applications are not required each year, as long as no major alterations have been made to the renewable energy systems. 1.2.6.5. Florida. In Florida, for the purpose of assessing a home's property taxes, an increase in the just value of the property attributable to equipment's installation should be ignored. A 100% property tax exemption for the added value of the eligible devices including residential photovoltaic systems, wind energy systems, solar water heaters, and geothermal heat pumps, are provided. The exemption applies to the following types of equipment used as part of solar, wind or geothermal systems, including solar energy collectors, photovoltaic modules, inverters, storage tanks and other storage systems, excluding swimming pools used as storage tanks, rock-beds, thermostats, heat exchange devices, pumps, fans, roof ponds, freestanding thermal containers, pipes, ducts, refrigerant handling systems, wind-driven generators, power conditioning and storage devices that use wind energy to generate electricity or mechanical forms of energy, pipes and other equipment used to transmit hot geothermal water to a dwelling or structure from a geothermal deposit. 1.2.6.6. Hawaii. In Hawaii, the Honolulu City Council is provides a 100% property tax exemption for 25 years on the assessed value of energy improvements systems. The alternative energy property installed on a building, property or land is exempt from property taxes for 25 years. For the purposes of property tax exemption, alternative energy sources include solar, wind, hydropower, tidal, wave, solid waste, and increased efficiency in fossil-fuel burning facilities. However, energy sources based on fossil fuels, nuclear fuels or geothermal energy are not eligible for this exemption. 1.2.6.7. Illinois. Illinois provides a full or 100% property tax exemption on the value of eligible devices, which include solar passive, solar water heaters, solar space heaters, and solar photovoltaic systems. Illinois offers a special assessment of solar energy systems for property tax purposes. For property owners who are registered with a chief county assessment officer, their solar energy equipment is valued at no more than a conventional energy system. Eligible equipment includes both active and passive solar energy systems. The exemption is not valid for equipment that is equally usable within a conventional energy system, or for components that serve non-solar energy generating purposes, but rather fulfill structural, aesthetic and insulating purposes. 1.2.6.8. Indiana. Indiana provides a 100% property tax exemption for assessed values or the costs of eligible renewable energy systems every year. Systems that generate energy using wind, hydropower or geothermal resources are exempt from the property tax, as are solar energy heating or cooling systems. Solar energy heating or cooling systems include solar energy systems utilized for domestic hot water and space heating, including the heating of swimming pools, as well as industrial pre-heating. Systems using solar power devices including solar thermal, photovoltaic (PV) systems, and other solar energy are exempt from property tax only if it was installed after December 31st, 2011. One exception to these rules are solar energy heating or cooling systems, which are exempt from property tax to an amount equal to the out-of-pocket expenditures for the components and labor

associated with the system. The property tax exemption applies to both real property and mobile homes equipped with renewable energy systems, and may only be claimed by property owners. The property tax exemption is allowed for every year that a qualifying system functions. However, renewable energy systems installed after December 31st, 2014, are no longer eligible for a property tax exemption if the ownership of the property has changed. 1.2.6.9. Iowa. There are two property tax exemptions provided in Iowa, which are categorized by solar and wind energy devices, and geothermal systems. A 100% property tax exemption for five years is provided on the assessed value of solar and wind energy devices. Meanwhile, a 100% per cent property tax exemption for ten years is provided on the assessed value of residential geothermal systems. In Iowa, the market value added to a property by the installation of a solar or wind energy system is exempt from the state's property tax. Eligible systems include systems of equipment capable of collecting and converting incident solar radiation or wind energy into thermal, mechanical, or electrical energy, and transforming these forms of energy by a separate apparatus for storage, or for a point of use. Residential geothermal systems, either new or retrofitted, include all equipment involved in the installation or labor required for the construction, as well as the proportionate value of any well field associated with the system or attributed to the owner. 1.2.6.10. Kansas. Kansas provides a 100% exemption for renewable energy equipment from property taxes, if an application for an exemption is filed for the property on or before December 31st, 2016. For applications for exemptions filed after December 31st, 2016, a property tax exemption will be limited to the 10 taxable years immediately following the taxable year in which construction or installation of such property is completed. The eligible renewable energy includes wind, solar thermal electric, photovoltaic, biomass, hydropower, geothermal, and landfill gas resources or technologies that are actually and regularly used, predominantly to produce and generate electricity. 1.2.6.11. Louisiana. In Louisiana, any equipment attached to an owner-occupied residential building or swimming pool, as part of a solar energy system, is considered personal property that is 100% exempt from ad valorem taxation. The value of a solar energy system will not be included in the assessment of related buildings or swimming pools. A solar energy system is defined as any device that uses the heat of the sun as its primary energy source, and is used to heat or cool the interior of a structure or swimming pool, or to heat water for use within a structure or swimming pool. As for solar energy systems, they include but are not limited to systems utilizing solar collectors, solar cells and passive roof ponds. 1.2.6.12. Massachusetts. The government of Massachusetts has stated that solar energy systems and wind energy systems used as primary or auxiliary power systems for the purpose of heating or otherwise supplying the energy needs of taxable property are 100% exempt from local property tax for a 20-year period. This incentive applies only to the value added to a property by an eligible system, and does not constitute an exemption for the full amount of the property tax bill. The hydropower facilities are also exempt from a local property tax for a 20-year period, if a system owner enters into an agreement with the city or town to make a payment, in lieu of taxes, of at least 5% of its gross income in the preceding calendar year. Any components of the energy system that serve dual purposes, for instance serving both structural and energy purposes such as windows, thermal drapes and floors, are not eligible for the exemption. Thermal storage rods, storage

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boxes, fan systems, and duct work that function exclusively as part of the energy system are all eligible for the exemption. 1.2.6.13. Missouri. Solar energy systems that not held for resale purposes are 100% exempt from property tax exemption. The exemption is based on the assessed value of the eligible devices, which can include solar water heaters, solar space heaters, solar thermal electric systems, solar thermal process heat systems, and solar photovoltaic systems. 1.2.6.14. Montana. Montana's property tax exemption for recognized non-fossil forms of energy generation, and low emission wood or biomass combustion devices, may be claimed for 10 years after the property's installation. The 100% exemption is based on the investment value of the building, which can be up to $20,000 for single-family residential dwellings, and up to $100,000 in value for multi-family residential dwellings or non-residential structures. It recognizes forms of energy generation that include solar photovoltaic systems, passive solar, systems wind, solid waste, decomposition of organic wastes systems, geothermal systems, small hydropower plants, low-emission wood or biomass combustion systems, and fuel cells that do not require hydrocarbon fuel. 1.2.6.15. New Hampshire. New Hampshire allows cities and towns to offer a 100% exemption from residential property taxes in the amount of the assessed value of a solar energy system, wind energy system, or wood-fired central heating system used on a property. A solar energy system is defined as a photovoltaic (PV) system, or a system that "utilizes solar energy to heat or cool the interior of a building, or to heat water for use in a building", and that includes one or more collectors and a storage container. Stoves and fireplaces do not qualify. As of September 2014, 98 cities and towns in New Hampshire had adopted a property tax exemption for one or more of these energy sources. 1.2.6.16. New Jersey. In New Jersey, a 100% property tax exemption is provided on the assessed value of the eligible renewable devices system including solar PV, wind, fuel cells, sustainable biomass, geothermal electric, landfill gas, hydroelectric, resource recovery, wave, and tidal systems that produce electricity. Exemptions may be claimed for all qualified systems installed on residential, commercial, industrial, or mixed use buildings, in the form of accessories. To claim for the exemption, property owners must apply for a certificate from their local assessor which will reduce the assessed value of their property to what it would be without the renewable energy system. 1.2.6.17. New Mexico. Residential solar energy systems, including solar water heaters, solar space heaters, and solar photovoltaic systems are exempted from property tax assessments in New Mexico in most circumstances. For the purposes of determining property taxes, the value of a property cannot increase by more than 3% from the previous year's assessment, or 6.1% from the assessment two years' prior, in accordance with state law. Assessments may exceed these restrictions, however, if physical improvements are made to the property. Residential solar systems will not be treated as physical improvements, and therefore will not increase the value of a property for property tax purposes. Future assessments, however, can include the value of a solar energy system if the property is sold. 1.2.6.18. Ohio. In Ohio there are two cities that providing property tax incentives, namely the City of Cincinnati and the City of Cleveland. The City of Cincinnati provides a 100% property tax exemption from the property's increased value, as a result of

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construction or renovation undertaken to meet LEED certification standards. This incentive is available to any building within city limits, and does not require a demonstration of financial needs. The tax reduction rules for residential buildings that have received permits on or before January 31st, 2013, can receive 100% property tax reductions for 15 years for newly constructed buildings, and 10 years for existing building retrofits for up to $562,792, while also considering that the market value limit increases by 3% each year. Meanwhile for the City of Cleveland, a 100% property tax exemption from the property increase value is provided based on a comprehensive building measure. The City of Cleveland provides a 10 to 15 year 100% tax exemption for increases in assessed real estate values for eligible residential projects. All projects are required to be built to the Cleveland Green Building Standard. 1.2.6.19. Oregon. Oregon law states that any change in real market value to a property, due to the installation of a qualifying renewable energy system, is fully or 100% exempt from the assessment of the property's value for property tax purposes. Qualifying renewables include solar, geothermal, wind or water systems, fuel cells, or methane gas systems used to heat, cool or generate electricity. This exemption is intended for end users, and only applies to systems that are net metered or is primarily intended to offset on-site electricity use. Systems installed on real property that is otherwise exempt from property taxation will continue to be exempt. 1.2.6.20. Rhode island. Rhode Island law provides a full exemption in regards to local municipal property tax assessment, while certain residential solar-energy systems may not be assessed at more than the value of conventional heating systems, a conventional water-heating system, or an energy production capacity that would otherwise be necessary for its installation in a building. Qualifying systems include photovoltaic systems, solar hot water systems and active solar space-heating systems. The equipment must be new. Passive solar systems and systems installed on boats or vehicles are not entitled for the exemption incentive. 1.2.6.21. Vermont. A 100% property tax exemption is provided in Vermont for solar photovoltaic systems, with a capacity of up to and including 10 kW (kW). However, for photovoltaic systems greater than 10 kW, the state assesses a uniform $4 per kilowatt (kW). This incentive applies only to equipment, and not to the land. 1.2.6.22. Texas. Texas provides a full property tax exemption to the amount of the appraised property value increase, arising from the installation or construction of a solar or wind powered energy device primarily used for the production and distribution of thermal, mechanical or electrical energy for on-site use, and devices used to store that energy. The Hays County provides a 100% property tax exemption on the value of rain water harvesting systems. This exemption is only eligible when a rainwater harvesting system serves as a residence's sole source of water. 1.2.6.23. Virginia. The state of Virginia offers either a 50% or 100% property tax exemption on eligible devices, including solar energy and recycling equipment. Solar energy equipment is designed and primarily used to provide for the collection and use of incident solar energy for water heating, space heating or cooling, or other applications which would otherwise require a conventional source of energy. Meanwhile, recycling equipment is defined as equipment integral to recycling processes, and used primarily for the purpose of abating or preventing the pollution of atmosphere or waters. It has been recorded that several cities are participating in providing the incentive, including Albemarle, Alexandria,

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Charlottesville, Chesterfield, Fairfax, Hampton, Hanover, Harrisonburg, Henrico, Isle of Wight, King and Queen, Lexington, Loudoun, Lynchburg, Prince William, Pulaski, Roanoke, Spotsylvania, Warren, Winchester and Wise. 1.2.6.24. Wisconsin. Any value added by a biogas or synthetic gas energy system, solar-energy system or a wind-energy system, is 100% exempt from general property taxes. This exemption is applied regardless of whether the equipment is deemed to be real property or personal property. In order to qualify for the exemption, property owners must file a request for the exemption with their local assessor by the March 1st following the January 1st assessment date for which the exemption is claimed. The exemption is not applicable for passive solar designs. 1.2.6.25. North Dakota. North Dakota provides a 100% property tax exemption on the assessed value of eligible devices. The incentive is applicable for new or existing buildings or structures. Both stand-alone systems and systems that are part of conventional systems are eligible. For solar, wind or geothermal systems that are part of a conventional energy system, only the renewable energy portion of the total system is eligible. This exemption is applicable only during the 5-year period following installation. 1.2.6.26. Colorado. Colorado offers two types of property tax incentives, including exemptions and rebates. Colorado provides a 100% tax exemption on the cost of renewable energy systems. The renewable system property must be located on residential real property, must be used to produce electricity from solar energy primarily used in residential improvements, and must have a production capacity of no more than one hundred (100 kW) kilowatts of AC electricity. A property tax rebate is available to residential property owners who install renewable energy systems in their properties. As for property tax rebate incentives, the rebate amount varies between counties and municipalities. An eligible renewable energy property is defined as any fixture, product, system, device or interacting group of devices that produce electricity from renewable resources, including but not limited to photovoltaic systems, solar thermal systems, small wind systems, biomass systems or geothermal systems. 1.2.6.27. Nevada. Multifamily residential buildings that have earnt certification under the United States Green Building Council's Leadership in Energy and Environmental Design (LEED) program may be eligible for a reduction in property taxes. To qualify for the tax reduction, new buildings must earn a minimum number of points for energy conservation through the LEED rating system. Buildings certified to the Silver Level must have at least 5 points for energy conservation, while those at the Gold Level must have 7 points, and those at the Platinum Level must have 11 points. The reduction's duration depends on the number of LEED points the building receives, and can last up to a maximum of 10 years. Buildings that have achieved LEED Silver, Gold, and Platinum are entitled to 25, 30 and 35% reductions of property tax payable annually. 1.2.6.28. South Dakota. South Dakota provides a property tax incentive reduction at 70% of the assessed value of eligible properties, or $50,000, whichever is greater for the eligible facilities. Facilities that generate electricity using wind, solar, hydro, hydrogen generated by another eligible resource or biomass resources are all eligible for this incentive, as are facilities that generate other forms of energy through the use of solar or geothermal sources. For eligible facilities with capacities of less than 5 MW (MW), all real property used or constructed to produce electricity is assessed in the same manner as other real property.

However, the first $50,000 or 70% of the assessed value of eligible property, whichever is greater, is exempt from the real property tax. For geothermal systems producing thermal energy, but not electricity, this exemption is limited to the first four continuous years for residential systems, and to the first three continuous years for commercial systems. 1.2.6.29. Tennessee. Tennessee offers a special ad valorem property tax assessment for certified green energy production facilities. Tennessee defines the sound, intrinsic and immediate values of alternative green source properties when they are initially appraised. The assessed property values of all certified green energy production facilities may not exceed one third of the total installation costs for wind systems, and 12.5% of the installation costs for solar systems. For other green sources of energy, properties should not initially exceed their appropriate capacity factors as determined by the State Board of Equalization, in consultation with the Department of Environment and Conservation. 1.2.6.30. New York. New York offers two property tax incentives, which include are exemptions and reductions. A full or 100% exemption is provided for the value added to the residence by the improvements. The eligible energy conservation improvements for homes are exempt from real property taxation, to the extent that the additions can increase the value of the home. These additions could include insulation equipment, water heaters, furnaces, boilers, heat pumps, air conditioners, programmable thermostats, energy management systems, caulking/weather-stripping, duct/air sealing, building insulation, and improved windows and doors. New York also provides a property tax reduction of 10%, and up to 35% for photovoltaic (PV) systems. The reduction is based on the total real property tax, associated with the portion of expenditures linked to installing a PV system in an eligible building. The incentive is only eligible for all real property, excluding utility real property. The reductions are provided based on several dates indicated below: a. Applications between August 5th, 2008 and December 31st, 2010 are entitled to a 35% reduction over a period of four years; b. Applications between January 1st, 2011 and December 31st, 2012 are entitled to a 20% reduction over a period of four years; c. Applications between January 1st, 2013 and December 31st, 2013 are entitled to a 10% reduction over a period of four years; d. Applications between January 1st, 2014 and December 31st, 2016 are entitled to a 20% reduction over a period of four years. 1.2.6.31. North Carolina. North Carolina also provides exemption and reduction incentives regarding property tax. They provide a full or 100% property tax exemption for eligible devices. This exemption applies only to active solar systems, and does not include any land or structural building elements such as walls and roofs, or other equipment ordinarily contained in a building. Specifically, such a system includes all controls, tanks, pumps, heat exchangers and other equipment used directly and exclusively in the conversion of solar energy for heating or cooling. Systems installed in residential, commercial and industrial properties are eligible for this exclusion. North Carolina also provides a 80% property tax reduction on the appraised value of a ‘solar energy electric system’ referred to as a photovoltaic system. Residential photovoltaic systems that are not used to generate income, or are not connected with a business, may be entirely exempt from property taxes.

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1.2.6.32. Maryland. Maryland is the only state that provides a rebate as a property tax incentive. There are six counties that actively provide rebates as property tax incentives, including Anne Arundel, Baltimore, Harford, Howard, Montgomery and Prince George. The amount of the rebate varies between the counties. The Anne Arundel County provides a rebate based on the level of LEED certification achieved by a building. The tax rebate is available for five years, and is calculated as a percentage of the county property taxes owed for a dwelling but not for the land. The incentive amount varies according to the performance level of the building, as determined through the applicable rating system. Buildings with LEED Silver are entitled to 40% of property taxes, with a maximum amount of $1000. Meanwhile for buildings with LEED Gold, they are entitled to a 60% reduction of property taxes, and to a maximum amount of $2000. Buildings with LEED Platinum are entitled to a 80% reduction in property taxes, and a maximum amount of $3000. Anne Arundel County also offers a one-time rebate from county property taxes for residential dwellings using solar photovoltaic and geothermal energy equipment for heating and cooling purposes, and solar energy equipment for water heating and electricity generation. However, the expenditures for solar pool heating are not eligible for tax credit. The one-time tax rebate covers 50% of the cost of relevant materials and the installation of solar energy equipment, less than the amount of federal and state grants and state solar energy tax credits, or $2500. Baltimore County also provides rebates based on the level of LEED certification achieved by buildings, but with different reduction percentages. The rebate has been formulated as a percentage reduction of the total county real property taxes assessed on properties, over the course of several years. The level and duration of the allowable credit varies between building types and levels of performance. In the case of residential homes, for new construction projects that seek to improve energy performance, the baseline used for determining the incentive is 30% energy improvement based on the county building code. For existing homes, the baseline is determined by the existing energy efficiency of the structure prior to the improvements. Residential homes that have achieved Silver, Gold and Platinum levels are eligible for 40%, 60%, and 100% tax rebate for three years respectively. However the property tax credit for residential homes is limited to $1 million within any fiscal year. The Harford County offers a tax credit for real property taxes imposed on residential buildings, non-residential buildings, or other structures that use solar or geothermal devices for heating, cooling, water heating or generating electricity for onsite consumption. The credit amount is equal to one year's total real property taxes, or $2500 per device, whichever is less. In September 2010 the county added a provision that limited total credits to $5000 per property, per fiscal year. The total real property taxes include all real property taxes that would have been paid by taxpayers for that year, for the host building or structure, but not for land. Meanwhile for Howard County, the tax rebate amount is determined as a percentage of the cost of qualifying energy conservation devices, which vary based on the LEED level. The tax rebate is available for three years. Buildings that have achieved certified Silver, Gold and Platinum levels are eligible for 14%, 16%, 18% and 20% tax credit respectively. Montgomery County offers property tax credits for residential, owner-occupied structures for the installation of energy conservation devices, including a variety of common energy efficiency related improvements, but not including standard household appliances. Tax credits for energy conservation devices are limited to the cost of the measure, up to $250 per fiscal year. Eligible costs include parts, components and accessories needed for operating the devices, as well as reasonable installation costs. Only costs

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incurred during the 12 months preceding a credit application are eligible for tax credits. The tax credit amount may not exceed the taxes imposed on properties during a fiscal year. Excess credits accrued during a year may be carried forward for up to two additional years. The total value of credits for energy conservation devices granted by a county during a fiscal year may not exceed $100,000. In the event that applications during a fiscal year exceed this limit, credits may be granted in the following year or years, in the order that applications are received. Prince George's County offers a property tax rebate on residential structures equipped with solar photovoltaic and geothermal systems. As originally devised, the credit should only be taken for systems used to heat and cool a structure, or to provide hot water for a structure. The tax rebate is equal to 50% of the system cost, up to $5000 for heating and cooling systems, and up to $1500 for water heating systems. The eligible costs include the parts, components and accessories necessary for operating the device, as well as reasonable installation costs. Only costs incurred during the 12 months preceding a credit application are eligible for tax credit. All systems must meet performance and safety standards set by a nationally-recognized testing laboratory. The amount of tax credit may not exceed the taxes imposed on the property during a fiscal year. Excess credits accrued during a year may be carried forward for up to two additional years, while the total value of credits granted by the county during a fiscal year may not exceed $250,000. In the event that applications exceed this limit during a fiscal year, credit may be granted the following year or years in the order that the applications were received. Therefore there are three types of property tax assessment incentives applicable to green building development within the United States, namely property tax exemptions, property tax reductions and property tax rebates [20,21,31,32]. There are twenty eight states that provide an exemption incentive for the property tax of green building. Meanwhile there are only two states, specifically Colorado and Maryland, which provide a rebate incentive on the property taxes of green buildings. Also five states have been found to provide reduction incentives, including Nevada, New York, North Carolina, South Dakota and Tennessee. Therefore it has been determined, as shown in Table 3, that the majority of states in the United States are providing exemption incentives, followed by reductions and rebates. Property tax exemptions provide a full or 100% exemption on the increased amount of property tax assessment, or the cost of the green components of buildings. Therefore green buildings are valued the same as conventional or non-green buildings. Meanwhile, the second incentive is property tax assessment reduction. There are two bases adopted for reduction incentives, namely a reduction on the increased amount of property tax assessments of green buildings, and a reduction in the costs of green components. Based on the DSIRE database, it has been determined that the percentage of reduction regarding the increased amounts of property tax assessment, or the costs of green components/devices of green buildings, range from 10 to 80%. Lastly, the third incentive is the property tax assessment rebate. The rebate incentive comes with a maximum amount of tax Table 3 Percentage of property tax assessment rebates in the United States. Level of green certification based on the leadership Percentage of the tax in energy and environmental design (LEED) green rebate (%) assessment tool Certified Silver Gold Platinum

14 10–40 18–60 20–100

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rebate, which can be easily redeemed by the entitled taxpayer. The rebate incentive requires local authorities to allocate a certain amount of budget in order to implement the incentive. The amount of the rebate varies according to the LEED (Leadership in Energy and Environmental Design) level of certification. Table 3 below displays percentages of tax rebates, based on LEED green certification levels. The maximum amount of tax credit varies between local municipalities, ranging from $1000 to $5000. The duration of the tax rebate ranges from three to five years. However, Shazmin et al. [39] has reported that the North Carolina State University and the Green Building Certification Institute in Washington have confirmed that there are no standard regulations or guidelines available for property tax assessment incentives on green building, as provided by local authorities. The North Carolina State University in United States is the organization responsible for developing and managing comprehensive databases and information on green building, specifically regarding the incentives and policies that have supported renewable energy and energy efficiency initiatives in the United States since 1995. After all, according to the North Carolina State University, the provided property tax assessment incentives on green building development vary depending on the consideration and discretion of each local authority. 1.2.7. Malaysia There is only one local authority in Malaysia, specifically the Petaling Jaya City Council, which provides property tax assessment incentives as motivators for green building. Located in the state of Selangor, Petaling Jaya has adopted an annual value, which is a rental value, as the basis of their property tax assessment. The rebate incentive has been provided since 2011, with the local authority allocating RM 100,000 annually to the budget for the rebate incentive program. The incentive is gaining the attention of the public, as a result of which the submissions for the incentive application have slightly increased each year. The maximum amount of the rebate incentives for each building is RM500 or 100%, depending on which is lower. According to an interview and a brief explanation from the Petaling Jaya City Council, there is no specific basis for the development of the rebate incentive. Moreover, the rebate incentive was not developed based on the principle of property tax assessment. It was also revealed that tax incentives have not been developed based on the Green Building Index (GBI) criteria utilized in Malaysia. Indeed the incentives were independently developed by a Non-Governmental Organization (NGO) in Malaysia. The amount of the approved incentives has been credited into the tax payer's real estate account registered by the local authority, as a replacement of the current property tax payment. 1.2.8. India India is another country in Asia that has adopted property tax assessment incentives on green buildings. Property tax in India is levied based on the Annual Rental Value (ARV) of a property. Five of India's states, which are amongst the largest in the nation, are currently providing the tax incentives. These include Madhya Pradesh, Maharashtra, Gujarat, Andhra Pradesh and West Bengal. A majority of these incentives have focused on providing property tax assessment incentive rebates for solar water heating and rainwater harvesting systems [35,36]. The state of Andhra Pradesh, along with several cities in Maharashtra including Thane, Amravati, the city of Durgapur in West Bengal and the city of Rajkot in Gujarat, are all providing property tax rebates for the installation of solar water heating in buildings. The percentage or amount of the tax rebate range from 5% to 10%, and total Rs. 500. Meanwhile the cities of Gwalior, Indore and Jabalpur, all of which are in the state of Madhya Pradesh, have provided a 6% rebate for

the installation of rain water harvesting systems in buildings. In addition to solar water heating, Andhra Pradesh also provides 10% tax rebates for daylighting systems, water recycling and rainwater harvesting structures. Furthermore, the Pimpri Chinchwad Municipal in Maharashtra provides a property tax assessment rebate on green building, based on their level of GRIHA certification. GRIHA is an acronym that stands for Green Rating for Integrated Habitat Assessment. GRIHA is a green certification assessment tool that has been adopted in India [37]. The percentages of discount rebates are between 5 and 15%. The score points range from 25 to 50. The rebate amount is calculated based on the total amount of property tax for the property during the fiscal year. The property tax rebate is applicable to all types of properties in India. 1.3. The bases of property tax assessment incentive models for green building Based on the above discussion, it can be summarized that there are three types of property tax assessment incentive models provided by several countries in regards to green building. These property tax assessment incentive models include the following: 1) Reduction incentives; 2) Exemption incentives; 3) Rebate incentives. It was found that five countries provide reductions on property tax assessment as incentives, specifically Romania, Spain, Italy, Canada and the United States. Meanwhile Bulgaria and the United States provide exemptions on property tax assessment incentives, and India, Malaysia and the United States provide rebates on property tax assessments as an incentive for green building. It is clear that the United States is the only country that provides all three types of property tax assessment incentives. Fig. 2 below displays a summary of the property tax incentives that are available for green buildings, namely exemptions, reductions and rebates, within each country. Four bases have been adopted for developing property tax assessment incentives for green building. These include: 1) Increased amount of property tax assessment of green building; 2) Cost of green components; 3) Rate imposed on property tax assessment; 4) Level of green certification. Essentially it was found that two incentive bases have been developed based on the value of green components, which specifically include increased amounts of property tax assessment of green buildings, and the cost of green components. These bases

REDUCTIONS

EXEMPTIONS

Romania Bulgaria

Spain Italy

The United States

India

Canada

Malaysia

REBATES

Fig. 2. Property tax assessment incentive models for green building, sorted by countries.

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The Bases

The Model

Increased amount of property tax assessments for green building

Exemption incentives

Costs of green components/devices

Level of green certification

Increased amount of property tax assessments for green building Costs of green components/devices Property Tax Assessment Incentives for Green Building

Reduction incentives Rate of property tax assessment

Level of green certification

Increased amount of property tax assessments for green building

Rebate incentives

Costs of green components/devices

Level of green certification

Fig. 3. The bases of property tax assessment incentive models for green building.

have been clearly developed, according to the concept of property tax assessment. The amount of property tax assessment is derived from a property value. Property value and property tax assessments have a positive relationship, whereby higher property values translate to higher property tax assessments, and consequently a higher property tax assessment revenue for local authorities. Besides, several studies have empirically proved that the value of green residential buildings have increased by up to 10%, when compared to non-green residential buildings [40,41]. This signifies that property tax assessment incentives have been developed based on green component values. In the meantime, incentive models have been developed based on the rate imposed on properties for the purpose of property tax assessments. However when property tax assessments are derived from a property value, the actual amount of tax imposed on taxpayers is calculated by multiplying the value of a property by a certain percentage, as determined by a local authority. As in Malaysia, rates on property tax assessments are under the jurisdiction of state level authorities. Any amendment on the rate must meet the approval of state authorities. Therefore, any adjustment on the rate rests outside the jurisdiction of local

authorities, and is subjected to approval by the state authority. As in Malaysia, the rate imposed on properties for the purpose of property tax assessment varies according to the particular location, and the types of property and land use. The maximum rates imposed on property tax, namely 5% of the improved value, are stated within Section 130 of the Local Government Act, 1976. Therefore reductions on the rates themselves can affect the fairness and equity of tax assessment in Malaysia. Nevertheless, incentive models have been developed based on levels of green certification. It has been found that this basis can be determined through the level of green certification achieved by a particular building, which can vary between the Platinum, Gold, Silver certified levels. This green certification is assessed based on score points allocated to each green criterion, as listed within the green building assessment tool. There are a number of green building assessment tools that have been developed in order to assist in the development of green building. Ding [42] stated that the aims of green assessment tools are to enhance environmental awareness in building practices, and to provide guidance for the building industry towards achieving sustainability in building development. Cole [41] has added that the adoption of green

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building assessment tools has led to the creation of a market demand for green sustainability practices, as well as increased public awareness and perception regarding the quality of green building procedures. Green building assessment tools are voluntary rather than mandatory. They were developed by the green building councils of each country, and each green building council is coordinated by The World Green Building council. The assessment of green building has been conducted by accredited professionals, commissioned by the green building council [42]. Some of the world's leading green building assessment tools include the BRE Environmental Assessment Method (BREEAM) of the United Kingdom, Leadership in Energy and Environmental Design (LEED) of the United States, the Green Building Council of Australia Green Star (GBCA) of Australia, the Green Mark Scheme of Singapore, the Comprehensive Assessment System for Built Environment Efficiency (CASBEE) of Japan, the Hong Kong Building Environmental Assessment Method (HK BEAM), and the Green Building Index (GBI) of Malaysia. Therefore, this basis has been found to be adopted without being based on the concept of property tax assessment, as this basis relies on the level of green certification achieved by buildings. This basis is not considering to be the value of a property. Besides, not all green criteria listed on the green assessment tool contributes to increasing a property’s value. Therefore it is vital to establish a property value, as it is the key for determining the amount of property tax assessment imposed on taxpayers. Fig. 3 Table 4 below presents the models and bases of property tax assessment incentives for green building. It has been established that three bases have been adopted in order to develop exemption and rebate models. These specifically include exemptions or rebates on the increased amount of property tax assessment of green buildings, exemptions or rebates on the costs of green components, and exemptions or rebates based on the levels of green certification. Meanwhile four bases have been adopted for reduction models, including reductions on the increased amount of property tax assessments of green buildings, reductions on the cost of green components, reductions on the rate imposed through property tax assessment, and reductions on levels of green certification.

2. Discussions Providing property tax assessment incentives for green building has been proven to encourage green building development. Several countries have adopted property tax incentives on green building, in order to encourage the growth of green building. The paper has discussed three types of property tax assessm-

ent incentives available for green building, namely reductions, exemptions and rebates. The crucial issue involved in providing tax incentives, is the need to consider the effect of the provided incentives on the existing property tax revenue of local authorities. The tax incentives should be able to at least maintain and avoid causing deficits to local authority property tax revenues. Accordingly, it has been found that two bases for these incentive models have been developed based on the basis of green components values, whereby these bases are fundamentally developed based on the concept of property tax assessment. Therefore, these bases significantly consider the effect of the provided incentives on local authority tax revenues. However, the model based on the level of green certification has not been developed according to the concept of property tax assessment, as the incentive is based on the green criteria score points listed as a green assessment tool. These green criteria do not explicitly represent a property's value. Each property tax assessment incentive model has a varying effect on local authority tax revenues. The exemption model provides an exemption based on the increased amount of property tax assessment of green buildings, an exemption based on the cost of green components, and an exemption based on level of green certification. In other words, this model assumes that green components provide no added value to a building's value. Therefore, a green building has the value of an existing or non-green building. As a consequence, this model will maintain the existing amount of property tax revenue of a local authority. Meanwhile, exemptions based on certification level are usually provided for buildings that are certified with the highest level of green certification for a particular green building assessment tool, such as those on a platinum level. Therefore, usually buildings that achieve the highest levels of green certification are exempt from property tax assessment. Meanwhile reduction models provide four types of reductions, which include a reduction on the increased amount of property tax assessment of a green building, a reduction in the cost of green components, a reduction of the rate imposed on property tax assessment, and a reduction on the level of green certification. Reductions regarding increased amounts of property tax assessment of green buildings and the cost of green components will increase the amount of property tax assessment imposed on taxpayers. This will simultaneously increase the local authorities' property tax revenue. However, reductions based on the level of green certification will most probably decrease local authority tax revenues, as this basis does not depend on the value of property. The rebate model provides a reduction or exemption for the increased amount of property tax assessments of green buildings, along with the cost of green components, and is based on levels of

Table 4 Summary of the types of incentive models and bases adopted by countries. Countries

Incentive models

Incentive bases

Reductions Exemptions Rebates Increased amount of property tax assessments of green building Europe

Spain Romania Italy Bulgaria North America The United States Canada Asia Malaysia India

Cost of green components

✓ ✓ ✓ ✓

Rate imposed on property tax assessments

Green certification levels

Undisclosed bases

✓ ✓ ✓ ✓ ✓

✓ ✓

✓

✓

✓

✓

✓ ✓ ✓

✓ ✓

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green certification. This model can provide a fully exemption or reduction for the total amount of the property tax assessment of green buildings. The percentage of reduction is usually provided with the maximum amount of rebate that property tax payers can redeem. This kind of incentive usually depends on the budget allocation made by local authorities. The incentive program is valid until the budget is fully redeemed by tax payers, or within a certain period of time as allocated by the local authority. The amount of the approved incentives is credited to the tax payer's property tax account as registered at a local authority, as a replacement of the current property tax payment. However, implementing this model requires a local authority with a strong financial capacity and background. It has therefore been summarized that each property tax assessment model on green building has a varied effect on local authority tax revenues. Therefore careful consideration is important for implementing the incentive on green building. Principally the provided incentive should not compromise on the existing tax revenue of the local authority. However for the purpose of encouraging green building development, it is significant that a property tax assessment incentive model should be able to maintain the existing property tax revenue of local government.

3. Conclusion In summary, property tax incentives have been provided around the globe in an effort to encourage and foster the growth of green building at a local level. The adoption of the incentive on green building has been proven as a means of promoting green building development. There are three types of property tax assessment incentive models, including exemptions, reductions and rebates. These models have been developed based on four bases, which include increased amounts of property tax assessment of green building, the costs of green components, the rates imposed on property tax assessment, and the levels of green certification. Therefore this research is important for local authorities as it provides details regarding the property tax assessment incentives models adopted by countries around the globe. This study is noteworthy, as it serves as a main reference for local authorities planning to adopt property tax assessment incentives for future green building, including Malaysia's local authorities. However, careful consideration should be given to determining the basis of property tax incentives. A successful property tax incentive model should maintain the local authority's existing property tax revenue, and while at the same time it should not be a burden to taxpayers. Undeniably, taxpayers will enjoy numerous benefits from the integration of green components into their buildings, an example being energy savings. Meanwhile for local authorities, the basis for developing property tax assessment incentive models on green building is crucial for ensuring that incentives are able to maintain local authority tax revenues. However, in the long term through this incentive, local authorities will increase their income in regards to property tax revenue, and will establish reputable images as local authorities who are actively promoting green building development.

Acknowledgments The authors greatly appreciate Universiti Teknologi Malaysia (UTM) ( Grant number Q.J130000.2527.10H82), Skudai, Malaysia

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for funding this research through the Research University Grant Scheme (GUP) Tier 1.

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Shazmin Shareena Ab. Azis (currently a Ph.D. student) Real Estate Department, Faculty of Geoinformation and Real Estate, Universiti Teknologi Malaysia, 81310, Skudai, Johor. [email protected]. Education Background: B.Sc. in Property Management: Universiti Teknologi Malaysia, Skudai, Johor Diploma Valuation: Universiti Teknologi Malaysia, Skudai, Johor.

Dr. Ibrahim @ Atan Bin Sipan Centre for Real Estate Studies, Faculty of Geoinformation and Real Estate, Universiti Teknologi Malaysia, 81310, Skudai, Johor, [email protected], Specialization: a. Geographic Information System (GIS) Application in Real Estate (Enterprise GIS, Mass Appraisal Modeling for Local Authorities) b. Sustainable Real Estate Investment and Property Valuation (Green Building, Plant & Machinery Valuation, Portfolio Investment, Market) Education Background: Ph.D. Real Estate: Universiti Teknologi Malaysia, Skudai, Johor Master Of Bussiness in Propety: University of South Australia B.Sc. in Property Management: Universiti Teknologi Malaysia, Skudai, Johor Diploma Valuation: Universiti Teknologi Malaysia, Skudai, Johor.

Dr. Maimunah Sapri Centre for Real Estate Studies, Faculty of Geoinformation and Real Estate, Universiti Teknologi Malaysia, 81310, Skudai, Johor [email protected], [email protected]. Specialization: Asset and Facilities Management Education Background: Doctor of Philosophy (Ph.D.): Heriot-Watt University, Edinburgh, United Kingdom M.Sc. in Facilities Management: Universiti Teknologi Malaysia, Skudai, Johor BSc in Property Management: Universiti Teknologi Malaysia, Skudai, Johor Diploma in Estate Management: Institut Teknologi Mara, Shah Alam, Selangor.