UK leading the way on carbon taxes

The UK has been ranked as having the most active carbon and climate change tax regime of 21 major economies, outranking Australia, Finland and Germany

Global accountancy firm KPMG has analysed the tax systems of 21 of the world’s biggest economies, including the US, China and Russia, and published an index ranking the countries on how actively they are using green taxes to encourage organisations to behave more sustainability.

KPMG has ranked the countries on their use of tax incentives and penalties to address individual green issues, including renewable energy, carbon emissions, energy efficiency, pollution control and water efficiency, as well as creating an overall ranking.

The UK was named as the country most actively using taxes to tackle climate change and carbon emissions, and ranked third for its overall use of green taxes, behind the US and Japan.

The US’s heavy use of tax breaks to encourage firms to become more energy efficient and install renewable energy saw it come top, while Japan scored highly for its measures promoting the manufacture and use of green vehicles.

Russia, Mexico and Argentina meanwhile, were rated as having the least environmentally engaged tax systems.

“Governments are increasingly using green taxes as a tool to change corporate behaviour and to assist with environmental policy objectives,” said Barbara Bell, head of KPMG’s environmental tax team in the UK.

“Businesses face a multitude of challenges worldwide, and those which operate on a multinational basis face a sometimes bewildering array of different taxes and incentives.

“A pro-active approach to green tax can help companies reduce the cost of strategic investments, drive innovation, improve efficiency and secure competitive advantage.”

According to KPMG’s analysis 30 new green tax incentives, penalties or significant changes to regulation have been introduced across the 21 countries since January 2011.

The Index also reveals the differing approaches taken to using green taxes. For example, just seven of the countries examined are using taxes to encourage more sustainable water consumption and eight have taxes supporting energy efficiency, compared with 17 which incentivise the uptake of renewable energy and fuels through taxes.

While the UK ranked highly for its approach to carbon taxes, it came bottom of tables examining tax regimes supporting green innovation, renewable energy and energy efficiency.