Climate change, pollution and the related challenge of ensuring food, water and energy security are becoming increasing concerns for governments around the world. In one attempt at a response, governments are seeking to reduce emissions, encourage efficient use of resources and promote green innovation. This post reviews tax policies around the world designed to steer consumer and corporate behavior towards sustainable practices.
In order to address the challenges of environmental changes, governments are designing and implementing green policy tools ranging from tax incentives to specific subsidies and grants. KPMG International’s Green Tax Index Report analyzes green tax systems from 21 countries. The Index provides information on “which countries are most active in using green tax incentives and penalties to drive sustainability”. It identifies over 200 individual tax incentives and penalties to achieve green policy objectives and categorizes countries into four quartiles according to the degree of tax use (see table below). The ranking of China in the first quartile and Finland and Germany in the third are certainly surprises.
| Quartile 1 | US, Japan, France, South Korea, China |
| Quartile 2 | Ireland, Netherlands, Belgium, India, Canada, Spain |
| Quartile 3 | Australia, South Africa, Germany Finland, Singapore |
| Quartile 4 | Brazil, Argentina, Mexico, Russia |
Source: KPMG Green Tax Index Report 2013
The United States tops the ranking with a strong bias towards tax incentives due to its extensive program of federal taxes promoting energy efficiency, renewable energy and green building. Japan comes in second place, ranking higher on green tax penalties than the U.S, with a specific focus on the use and adoption of green vehicles. In third place, the United Kingdom leads on carbon and climate change and presents a more balanced approach between incentives and penalties.
Australia, Germany and Finland, associated with strong environmental policies, are surprisingly constituents of the third quartile. However, this is mainly explained by the wide range of green policies they have implemented, few of which are of the tax variety. Australia (18th) has focused on non-tax tools such as grants, loans and direct investment to promote green innovation and energy efficiency. Similarly, Germany (17th) favors low-interest loans and capital subsidies, and Finland (21st) focuses on grant funding for green innovation.
The emerging economies Brazil, Mexico, Russia and Argentina are located in the fourth quartile. Policy tools in these countries are mainly applied as incentives: Russia leading in promoting energy efficiency and Brazil in green innovation. However, overall, there are few instruments in place in these countries regarding the achievement of green goals.
Since January 2011, more than 30 green taxes have been introduced around the globe. This trend will continue to drive consumer and business behavior towards more sustainable practices. These policies will certainly contribute to already changing customers’ perceptions on greener businesses and products. Corporations must be prepared to benefit from these policies and to adopt them into their everyday operations. In another post we will discuss some of the implications these policies represent for corporations and their sustainability goals.