This archive report was first published on 26 September 2021.
Taxes and Incentives Drive Environmental Sustainability ¶
As the world grapples with climate change, governments are increasingly turning to environmental taxes and incentives to promote sustainability. This approach is in line with the United Nations' Sustainable Development Goal 13, which calls for urgent action to combat climate change and its impacts.
One notable example is the European Union's commitment to reduce greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels. This ambitious goal will be achieved through a range of measures, including increased use of renewable energy, efficient energy use, and the rollout of low-emission transport modes.
Environmental taxes, as defined by Eurostat, are levied on physical units of goods or activities that have a proven negative impact on the environment. These taxes aim to increase the cost of environmentally harmful activities or goods relative to less harmful alternatives.
There are four main categories of environmental taxes: energy, transport, pollution, and resource. Energy taxes focus on energy production and products, such as petrol and diesel, while transport taxes target ownership and use of motor vehicles. Pollution taxes address emissions to air and water, solid waste management, and noise pollution. Resource taxes are linked to the extraction or use of natural resources.
Environmental taxes can be levied on final products or raw materials, and are based on the quantity of output or sale price. Alternatively, they can target the variable and fixed costs of inputs used to produce environmentally harmful goods or activities.
For instance, Kenya outlawed single-use plastic carrier bags in 2017 and introduced an excise duty of 10% on plastics in 2021. Targeted incentives, such as tax deductions, allowances, or rebates, are also granted to individuals and organizations engaged in environmentally friendly activities or product production.
As environmental taxes and incentives continue to grow in importance, organizations must factor them into their strategies, investment decisions, and environmental, social, and governance policies.
The views expressed here are not necessarily those of Ernst & Young.
