Green Taxes Could Spur Tech Innovation

October 18, 2010 International Tax CooperationTaxation in MexicoTaxation in NetherlandsTaxation in USA

DiscrepantThe concentrated and appropriate use of environmental taxes could encourage businesses across the globe to seek innovative solutions to technological problems and encourage the expansion of widely beneficial “green technologies”.

Attempting to rectify the world’s environmental problems could be an economically crippling task if no significant advancements are made in currently available technology, according to information provided in Taxation, Innovation and the Environment, a new report on “green taxes” by the Organization of Economic Cooperation and Development (OECD). Announcing the release of the publication Angel Gurría, OECD Secretary-General, said “To achieve a greener future we need new technologies that can lower the cost of saving the planet.” He added that shifting a greater tax burden onto pollution will increase global incentives for rapidly developing environmental technology and encourage “green growth”.

The report referred to several successfully implemented environmental taxes around the world. According to the publication, in the UK there is a strong relationship between the number of patents filed by companies and their Climate Change Levy payments, demonstrating that environmental taxes encouraged creative solutions to pollution problems in the country. Similarly, in Sweden the introduction of a Nitrogen Oxide emissions tax prompted to the development of new technologies, which have so far reduced national emissions by nearly one-third. On a small-business scale, in Switzerland the tax on volatile organic substances is reported to have induced small producers to adapt currently available technologies in a more efficient manner, without the need for research and development of new solutions.

Environmental taxes often provide relatively small revenues, either due to their scope or the levied rate. However, if well designed, the taxes can have disproportionately positive effects on consumer and producer behaviors. In 2008 the Netherlands had the highest environmental tax load in the world, at only 4.49 percent of GDP. On average, across the countries surveyed, the environmental tax burden was approximately 1.58 percent. In the US, the burden was an even lower, at 0.77 percent of GDP. Conversely, Mexico actually had a -1.59 percent burden, due to its use of subsidies to control fluctuations in consumer vehicle pricing.

Subsequently the report recommends governments to appropriately inspect the impact of any tax measures, and aim them for the greatest environmental benefit, as opposed to their potential economic payoffs.

Photo by *~Dawn~*