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Environmental Taxation

As environmental, social and corporate governance (ESG) issues rise on leadership agendas globally, tax is being seen as increasingly important in the environmental agenda, decarbonization and climate change as a whole.

Explore Environmental Taxation

Applying tax to polluting activity internalizes the cost that otherwise would be borne by society, providing an incentive to both companies to reduce polluting activity and to consumers to switch away from consuming polluting goods and services. By putting a cost on polluting activity, green taxes provide a price signal that encourages investment in green technology and products. Tax policy can also be used to provide incentives for green investment, for example in the form of credits and deductions.

It has been estimated that an investment of around US$4bn per year into the clean energy sector alone will be needed in order to ensure that the world becomes carbon neutral by 2050. Such funding is unlikely to be provided solely by governments, meaning private investment is required. There are, however, a number of barriers to ensuring private capital is invested either in new technologies or in certain parts of the world, particularly in developing countries. Tax is only one of these barriers, and unlikely to be the major one, but tax holds an important role in facilitating investment.

As responsible investment becomes increasingly attractive, we continue to look at the role tax plays in ESG through KPMG’s Global Responsible Tax Program.

Themes in this section include:

  • How can tax policy drive investment into a green recovery?
  • Potential designs for a carbon border adjustment mechanism
  • The compatibility of a carbon border adjustment mechanism with World Trade Organisation rules

Explore Environmental Taxation

Image of Tax and facilitating investment into carbon abatement projects: Discussion paper in the light of COP26

Tax and facilitating investment into carbon abatement projects: Discussion paper in the light of COP26

We are pleased to release a new discussion paper as a part of our lead-up to the global conversation around carbon reduction in the lead-up to COP26, which explores the role of tax in facilitating investment into carbon abatement projects around the world.

26 Oct 2021
1 min
Image of Tax, Transparency & ESG Reporting

Tax, Transparency & ESG Reporting

What gets measured, gets managed.

19 Aug 2021
5 min
Image of the world magnified from an aerial viewpoint

Towards an Effective Carbon Border Adjustment Mechanism

As the world seeks to address climate change, there are various approaches which can be used.

19 Jul 2021
17 min
Image of The impact of carbon pricing and potential effects of a CBAM

The impact of carbon pricing and potential effects of a CBAM

Participants thought that if some countries or regions significantly increase CO2 reduction ambitions but others do not, there is likely to be a significant risk of carbon leakage. While a global approach to creating a minimum carbon price would be best approach, it could be very difficult to achieve.

22 Apr 2021
14 min
Close up of a cross cut tree trunk showing its rings

Comments on the European Commission’s public consultations on the Energy Tax Directive and Carbon Border Adjustment Mechanism and KPMG’s ESG approach

Authors: Loek Helderman, Global Tax Lead KPMG Impact, Mike Hayes,  KPMG Impact Lead on Climate Change and Decarbonization and Chris Morgan, Head of Global Tax Policy, KPMG International 

12 Nov 2020
1 min
Image of circular lily pads on a pond

Going green: Driving investments with multi-lateral organizations

While the “carrot” of tax incentives may be useful to drive, or even kick start investment into new technology or regions, the recent roundtable discussion confirmed they are not the key issue in unlocking green investment. Similarly, while environmental taxes and reducing fossil fuel subsidies can help redirect investment into green projects, there are already many investors willing to fund...

26 Oct 2020
9 min
Image of a circle clearing in a group of trees

Going green: Economic recovery through the lens of an asset manager

Tax incentives can play a potentially important role in encouraging green investment, but must be transparent and clearly linked to environmental benefits. There is a need to broaden the base of investors which is likely to require mechanisms to reduce risk – for example through blended finance projects. Obtaining tax certainty, especially over the treatment of structures which require intermediate...

10 Sep 2020
7 min
Aerial video of a circular structure surrounded by trees

Going green: An institutional investors take on a green recovery

Institutional investors agreed that generally, certainty over the tax cost or duration of any incentives was more important in the investment decision than the actual tax cost. Nevertheless, reducing the tax cost on inward investment and providing transferable research and development credits would encourage investment into green projects – as would reducing current subsidies for fossil fuels. Overall tax risk...

13 Aug 2020
10 min

Contributors

We are grateful to all of our contributors, including:

Chris Morgan, Head of Global Tax Policy, KPMG LLP

Chris Morgan

Head of Global Tax Policy at KPMG LLP

Neal Lawson, Author, Jericho Chambers

Neal Lawson

Author at Jericho Chambers

Loek Helderman, Partner, KPMG Meijburg and Co

Loek Helderman

Partner at KPMG Meijburg and Co

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