13/10/2010 - Governments could make better use of environmental taxes to discourage
polluting activities and boost innovative ‘green technologies.’
“To achieve a greener future we need new technologies that can lower the cost of saving the
planet,” says OECD Secretary-General Angel Gurría. “Shifting part of the tax burden onto
pollution makes it more attractive to develop and adopt these clean technologies and promotes
green growth.”
OECD and many other governments already apply a range of taxes to energy, air and water
pollutants and waste. Environmental taxes, along with tradable permit systems, are the most
cost-effective and efficient environmental policy tool available. Citizens and industry react to
green taxes by changing their behaviour, especially if government gives a strong signal that
they intend to maintain tax rates and the price of carbon at high levels in the long-term.
The relationship between environmentally related taxes and innovation is complex. How
do ‘green’ taxes prompt businesses to innovate? What types of innovation result, and with
what benefits? Does the design of the taxes play a critical role?
OECD’s new Taxation, Innovation and the Environment answers these questions,
drawing on case studies:
The report finds, for example that UK firms which pay the full Climate Change Levy come up
with more new patents than firms that pay a reduced rate. And putting a price on pollution
results in more innovative ideas than regulations or standards.
In Israel, high water prices and taxes have prompted innovation. In Sweden, introduction of a
tax on smog-causing NOx emissions prompted companies to patent new clean technologies,
and reduce emissions by one-third. The Swiss case study on Volatile Organic Compounds
illustrates that taxes can also trigger many simple but effective innovations that need not
be patented.
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