UK leads the world on using tax to tackle carbon and climate change

by Search Gate staff. Published Thu 25 Apr 2013 12:59
Study examines how taxes are used to achieve green policy goals

The UK is the leading nation in the world to use tax as a tool to combat carbon and tackle climate change, according to a new report by KPMG International.

The country is ranked third of the most active countries that use the tax system to drive sustainable corporate behaviour and achieve green policy goals. However, it is the leading country when targeting emissions.

Other countries on the list include the US, Japan, France, South Korea and China.

The finding is contained in the first KPMG Green Tax Index, launched today at the 2013 KPMG Asia Pacific Tax Summit in Shanghai.

The KPMG Green Tax Index explores how governments are using their tax systems to respond to global challenges including energy security, waste and recycling, water and resource scarcity, pollution and climate change.

It analyses green tax incentives and penalties in 21 major economies, focusing on key policy areas such as energy efficiency, water efficiency, carbon emissions, green innovation and green buildings.

The KPMG Green Tax Index is intended to raise corporate awareness of the rapidly evolving and complex global landscape of green tax incentives and penalties, and to encourage tax directors and sustainability chiefs to work together to factor green tax considerations into investment decisions.

“Green taxation is a rapidly evolving and increasingly complex area,” says Barbara Bell, Head of KPMG’s Environmental Tax team in the UK. “Businesses face a multitude of challenges worldwide, and those which operate on a multinational basis face a sometimes bewildering array of different taxes and incentives.

“And, yes, this is an area of tax management which requires an investment of knowledge and effort, not to mention resources. If addressed with knowledge and pro-activity, however, the challenges can become opportunities.

“Governments are increasingly using green taxes as a tool to change corporate behaviour and to assist with environmental policy objectives. The UK’s landfill tax, for example, was introduced in 1996 and has had a marked and widely acknowledged impact in significantly reducing the amount of waste going to landfill.

“Our analysis shows that at least 30 new green tax incentives, penalties or significant regulation changes have been introduced in the countries we studied since January 2017. A pro-active approach to green tax can help companies reduce the cost of strategic investments, drive innovation, improve efficiency and secure competitive advantage.”

The KPMG Green Tax Index – Overall Top 10 Ranking:

1 US
2 Japan
3 UK
4 France
5 South Korea
6 China
7 Ireland
8 Netherlands
9 Belgium
10 India

The research behind the ranking revealed:

• The UK ranks 3rd and has a green tax approach balanced between penalties and incentives. The UK scores most highly in the area of carbon and climate change.

• The US tops the ranking primarily due to its extensive program of federal tax incentives for energy efficiency, renewable energy and green buildings.

• When green tax penalties alone are considered, the US drops to 14th, indicating that US green tax policy is weighted heavily in favor of incentives.

• Japan is ranked 2nd overall but, in contrast to the US, scores higher on green tax penalties than it does on incentives. Japan also leads the ranking for tax measures to promote the use and manufacture of green vehicles.

• France occupies 4th place in the overall ranking and is also unusual in that its green tax policy is more heavily weighted towards penalties than incentives.

• South Korea ranks 5th overall and, in common with the US, has a green tax system weighted towards incentives rather than penalties. South Korea leads the ranking for green innovation which suggests that South Korea is especially active in using its tax code to encourage green research and development.

• China ranks 6th with a green tax policy balanced between incentives and penalties and focused on resource efficiency (energy, water and materials) and green buildings.

• The US uses green tax penalties less than other Western developed nations, apart from Canada. The only countries in the Index that impose fewer green tax penalties than the US or Canada are emerging economies such as Brazil, India, Mexico and Russia. China and South Africa are both more active than the US or Canada in imposing federal green tax penalties.

The KPMG Green Tax Index attributes scores to green tax incentives and penalties according to arguable value and potential to influence corporate behavior. Scores should be taken as indicative, not absolute, in providing a view of governments with the most active and developed green tax systems in place.

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