The failure of the UN Climate Conference at Copenhagen to deliver an internationally binding agreement means governments will use their local tax systems to combat climate change, says Ernst & Young’s Global Renewable Energy Leader Ben Warren.
While the outcome of the Copenhagen summit was not one many hoped for, much of the commentary — in Europe at least — focused on what was reported to be the dominant negotiating presence of the US and China.
Given that Europe’s carbon taxes are the only real global effort to penalize carbon emissions and other negative climate change behavior, this was somewhat ironic. Additionally, six of the top 10 countries for renewable energy investment are European, according to our latest global Renewable Energy Country Attractiveness Indices.
The latest indices, which provide scores for national renewable energy markets, revealed that these markets are increasingly competing for the attention of new investors. Within each jurisdiction, there is also competition between different infrastructure sectors for scarce capital.
To this research can be added an Ernst & Young survey of 36 countries undertaken to obtain a more accurate picture of the role tax is playing in the response to climate change, and what could be predicted for in the future.
Furthermore, after surveying 36 countries on the roles tax is playing in response to climate change we found that the tax system is playing an increasingly pivotal role, whether via incentives or by the introduction of new taxes. The great majority of countries in our survey do not have an emissions cap and prefer incentives and grants.
Similarly, most government policies encourage businesses to “save” energy to make themselves more energy efficient as opposed to switching to alternative sources.
Among the countries surveyed, the portion of stimulus funding that goes toward energy and sustainability initiatives varies significantly.
Clean development mechanisms appear to be the most significant incentives in developing countries, and encourage businesses to invest in projects that reduce their emissions.
In the developing world grants take the form of soft loans for greenfield developments. Europe, meanwhile, offers some incentives to encourage new corporate behaviors in relation to climate change, but the use of taxes is also extensive.
Among the countries surveyed by Ernst & Young, the portion of stimulus funding that goes toward energy and sustainability initiatives varies significantly. The average for the survey participants was 17% — slightly higher than the global average of 16%.
Behind South Korea’s 82%, China has earmarked the second-highest percentage (32%) of economic stimulus money to be invested in environmental projects with Australia and the US following, with 22% and 17%, respectively.
With the global economy slowly emerging from the recession, countries are choosing their own ways to rebuild their economies and address climate change challenges.
But as the transition to a low-carbon economy gathers pace, and with the renewable energy sector still impacted by a global capital shortage, green taxes and incentives are likely to become a permanent — and borderless — feature of the global business landscape.
