Taxation, Innovation and the Environment

 

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 Taxation, Innovation and the Environment

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Publication Date:
13 October 2010

 

Solving the world’s environmental problems could take a significant toll on economic growth if only today’s technologies are available. We know that innovation – the creation and adoption of new technologies and know-how – provides a means to achieve local and global environmental goals at significantly lower costs. Innovation is also a major driver of economic growth.

OECD governments are increasingly using environmentally related taxes because they are typically one of the most effective policy tools available. Exploring the relationship between environmentally related taxation and innovation is critical to understanding the full impacts of this policy instrument – one potential facet of “green growth.” By putting a price on pollution, do environmentally related taxes spur innovation? What types of innovation result? Does the design of the tax play a critical role? What is the effect of this innovation?

In analysing these questions, this report draws on case studies that cover Japan, Korea, Spain, Sweden, Switzerland, the United Kingdom, Israel and others.

This report is a project of the OECD's Joint Meetings of Tax and Environment Experts, who work in concert with the Environment Directorate and the Centre for Tax Policy and Administration. This project also forms a part of the OECD's Green Growth Strategy.

Table of contents

Executive Summary

Chapter 1. Introduction, Background and Main Findings
Chapter 2. Current Use of Environmentally Related Taxation
Chapter 3. Effectiveness of Environmentally Related Taxation on Innovation
Chapter 4. Tax Design Considerations and Other Tax-based Instruments
Chapter 5. A Guide to Environmentally Related Taxation for Policy Makers
Case Studies:
 - Annex A: Sweden's Charge on NOx Emissions
 - Annex B: Water Pricing in Israel
 - Annex C: Cross-country Fuel Taxes and Vehicle Emission Standards
 - Annex D: Switzerland's Tax on Volatile Organic Compounds
 - Annex E: R&D and Environmental Investments Tax Credits in Spain
 - Annex F: Korea's Emission Trading System for NOx and SOx
 - Annex G: UK Firms' Innovation Responses to Public Incentives: An Interview-based Approach
 - Annex H: The UK's Climate Change Levy and Climate Change Agreements: An Econometric Approach
 - Annex I: Japan's Tax on SOx Emissions

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Related Materials

Full versions of some case studies:

OECD Work on Taxation and the Environment

In line with the increased importance attached to environmental issues, the OECD has scaled up its work on the nexus between tax policies and environmental policies; and with the Green Growth Strategy under preparation for the OECD Ministerial Meeting in May 2011, this process will continue in coming years. More information is available at www.oecd.org/env/taxes.

  • The OECD's Joint Meetings of Tax and Environment experts bring together officials from Tax and Environment Ministries from OECD and partner countries to exchange information and experience with the use of environmentally-related taxation.
  • The report Taxation, Innovation and the Environment was prepared by the Joint Meetings. It follows on from a report on The Political Economy of Environmentally Related Taxes, and one on Environmentally Related Taxes in OECD Countries: Issues and Strategies.
  • Recent discussions of the Joint Meetings have also addressed the renewed interest in CO2 taxes; a key component in the post-Copenhagen tax policy agenda. These discussions are reflected in the interim report on the OECD Green Growth Strategy (see www.oecd.org/greengrowth).
  • Subsidies and tax expenditures related to fossil fuels need to be reviewed in order to avoid that unintended incentives boost the production and consumption of fossil fuels, adding to green house gas emissions. The OECD has contributed to the work on G20 by identifying examples of fossil fuel tax expenditures (see www.oecd.org/g20/fossilfuelsubsidies).
  • A project on the tax treatment of tradable emission permits seeks to identify the ways in which the treatment of permits in corporate income taxes, sales taxes and value added taxes etc. might interact with the operation of cap-and-trade and similar schemes. Ultimately the aim is to ensure the integrity of tax systems and that emission trading operates in a way that achieves its objectives of inducing emission abatement where it has the least resource costs (see flyer).
  • OECD/EEA Database on Instruments for Environmental Policy on environmentally related taxes in OECD and partner countries is maintained with up-to-date information about tax rates, based and exemptions etc. (see www.oecd.org/env/policies/database).

 

www.oecd.org/env/taxes/innovation

 

 

 

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