Taxation in support of green transition: an overview and assessment of existing tax practices to reduce greenhouse gas emissionsClient: DG TAXUD | Sectors: Natural Resources, Public Sector Reform
Ecorys in collaboration with WIFO provided an assessment of tax practices targeting GHG emissions across the EU-27, the UK, and five other countries.
We conducted an economic literature review, built an inventory of tax measures consisting of taxes and tax incentives, and developed a benchmarking methodology to assess the mapped measures. Ten measures were selected as good practice examples, considering their overall environmental effectiveness and political viability (including economic and distributional implications), and reflecting the diversity of types of measures. Two workshops with Member State representatives complemented the research.
Our research illustrates that environmental taxes and beneficial tax incentives are increasingly used tools among countries to support a green transition towards lower GHG emissions. The study has identified more than 260 taxes and tax incentives that fall within the scope of the research approach. A growing body of research is available to countries. These can help them to make informed policy choices, striking a successful balance between designing tax measures that are effective in reducing GHG emissions yet remain reflective of the wider political implications. At the same time, the research also flagged that there is still room to improve and learn from each other. Although there is a growing body of evidence that could help to design taxes more effectively, in many instances countries still resort to second-best or less effective schemes. Further, there are still important gaps in the research agenda, especially with regards to tax incentives. This raises doubts to which extent policy makers can resort to solid empirical evidence when designing specific measures. The work on the inventory of tax measures highlighted that the availability of ex post evaluations particularly of tax incentives is limited. Yet, this information is crucial to support administrations that consider greening their tax schemes. Countries further need to reflect if there is room to enhance their efforts to curb GHG emissions via taxation. In some instances, the design of measures might serve other purposes, including revenue generation or meeting political demands, rather than focusing on a reduction of emissions. Striking the right balance between various and often conflicting interests will remain a key challenge for future policy making.
You can download the full report, executive summary, and annexes with good practice examples and country fiches below: