Corporate Taxation and Environmental Sustainability

Corporate Taxation and Environmental Sustainability:

Exploring the role of corporate taxation in promoting

environmentally sustainable practices

Introduction

With climate change posing one of the greatest threats facing humanity,

transitioning the global economy to a more sustainable model has become

imperative. While governments and regulators play an important role

through policies and regulations, businesses must also adopt

environmentally sustainable practices and investments. Corporate taxation

pricing, accelerated depreciation of green assets, tax credits for

sustainability projects and elimination of fossil fuel subsidies. Challenges

around border carbon adjustments and policy harmonization will also be

examined to evaluate the efficacy of taxation as a tool to motivate eco-

friendly corporate practices.

Carbon Pricing through Carbon Taxes

Implementing a carbon pricing mechanism through taxes on greenhouse gas

(GHG) emissions is one of the most direct policy approaches to make

polluters pay while encouraging emissions reductions. By raising the cost of

carbon, a carbon tax creates financial incentives for businesses to switch to

- Experience from British Columbia, Canada shows carbon taxes do lead to

emissions reductions and economic growth continues post-implementation

(Murray & Rivers, 2015).

However, businesses may view carbon taxes unfavorably and pass added

costs to consumers. International policy coordination is also difficult given

competitiveness concerns. But a gradually increasing, revenue-neutral

carbon tax remains one of the most powerful market-based options for

motivating corporate environmental action.

Green Tax Incentives and Subsidies

Targeted tax incentives and subsidies lower the after-tax cost of sustainable

carbon permanently sequestered or $/kWh of renewable electricity

generated.

- Subsidies for electric vehicles or green bonds make non-polluting options

artificially competitive against incumbent fossil fuels.

Studies indicate these tailored incentives have motivated investments in

cleantech, green buildings and waste management across industries in

countries offering them (Deloitte, 2020). However, designing them optimally

requires detailed tracking and sunset provisions to avoid creating new

stranded assets.

Fossil Fuel Subsidy Reform

- A 2016 IMF study showed phasing out energy subsidies in 20 countries

could lower emissions projections by over 5% annually and raise $2.9 trillion

in revenue each year (Coady et. al., 2019).

While politically contentious, reforming distortionary fossil fuel subsidies is a

under the Paris Agreement. Subsidy savings could also fund cleantech

subsidies and transition support for impacted communities.

Border Carbon Adjustments

the form of carbon duties on imports from nations without carbon pricing:

- BCAs in theory protect competitiveness of countries complying with carbon

pricing while pressuring others to follow suit for unfettered access to such

markets.

- Challenges lie in WTO compatibility, complexity of setting exact duty rates,

and willingness of trading blocs to implement coordinated BCA systems.

While likely to face legal challenges, BCA designs that balance

competitiveness and environmental imperatives could aid long-term policy

cooperation if introduced judiciously with major trading partners. Overall

agents of environmental change, certain limitations and challenges exist:

initially thought (Devereux & Loretz, 2013).

- Administering various policies at multiple policy levels requires ongoing

monitoring and synchronization.

- Public acceptance depends on equitable revenue recycling and protecting

low-income groups from added energy cost burdens.

Overcoming these hurdles demands careful long-term policy design and

cooperative global action on carbon pricing and standards to facilitate an

efficient transition across the private sector.

Conclusion

In summary, thoughtfully crafted tax policies stand to exert significant

influence on corporate sustainability efforts and investments in clean

technologies when implemented collectively at a large scale. Carbon pricing

away from carbon-intensive practices. While challenges remain around

competitiveness concerns and international cooperation, taxation gives

action across all fronts, policymakers would do well to optimize the role of

tax systems in driving the business case for sustainability.

With climate change posing one of the greatest threats facing humanity,

through policies and regulations, businesses must also adopt

environmentally sustainable practices and investments. Corporate taxation

has potential to influence corporate behavior in this regard by incentivizing

green business choices and investments in renewable energy and clean

technologies.

This paper will explore how environmental taxes and tax incentives can be

a low-carbon economy. It will analyze various policy options such as carbon

pricing, accelerated depreciation of green assets, tax credits for

sustainability projects and elimination of fossil fuel subsidies. Challenges

around border carbon adjustments and policy harmonization will also be

examined to evaluate the efficacy of taxation as a tool to motivate eco-

friendly corporate practices.

Carbon Pricing through Carbon Taxes

Implementing a carbon pricing mechanism through taxes on greenhouse gas

(GHG) emissions is one of the most direct policy approaches to make

- Revenue from carbon taxes can be used to lower other taxes, fund

transition programs or return funds directly to citizens through dividends.

However, businesses may view carbon taxes unfavorably and pass added

motivating corporate environmental action.

Green Tax Incentives and Subsidies

Targeted tax incentives and subsidies lower the after-tax cost of sustainable

investments and practices for businesses, thus incentivizing eco-friendly

- Accelerated depreciation allows faster write-offs of capital investments in

clean assets like renewable energy infrastructure or low-emission vehicles

over 3-5 years instead of 10-20.

generated.

- Subsidies for electric vehicles or green bonds make non-polluting options

artificially competitive against incumbent fossil fuels.

cleantech, green buildings and waste management across industries in

countries offering them (Deloitte, 2020). However, designing them optimally

Fossil Fuel Subsidy Reform

Worldwide governments subsidize fossil fuels worth over $500 billion

annually despite their contribution to climate change. Eliminating or

- Removing subsides makes renewable energy comparatively affordable and

more attractive to corporates looking to power operations from clean

- A 2016 IMF study showed phasing out energy subsidies in 20 countries

could lower emissions projections by over 5% annually and raise $2.9 trillion

in revenue each year (Coady et. al., 2019).

While politically contentious, reforming distortionary fossil fuel subsidies is a

practical and internationally equitable policy countries have committed to

under the Paris Agreement. Subsidy savings could also fund cleantech

Border Carbon Adjustments

To prevent carbon leakage and maintain competitiveness of domestic

- BCAs in theory protect competitiveness of countries complying with carbon

markets.

cooperation if introduced judiciously with major trading partners. Overall

they reflect the interconnected nature of climate policy across borders.

- Higher costs may cause some industries to relocate production to areas

with lax climate policies, though evidence suggests impact is smaller than

- Interactions with existing tax codes can reduce incentives if uncoordinated

with targeted credits or accelerator provisions.

- Public acceptance depends on equitable revenue recycling and protecting

low-income groups from added energy cost burdens.

efficient transition across the private sector.

Conclusion

In summary, thoughtfully crafted tax policies stand to exert significant

influence on corporate sustainability efforts and investments in clean

technologies when implemented collectively at a large scale. Carbon pricing

credits, fossil fuel subsidy reform and potentially border carbon adjustments

all provide meaningful policy levers for motivating businesses' transition

away from carbon-intensive practices. While challenges remain around

competitiveness concerns and international cooperation, taxation gives

governments an indispensable tool for steering trillions in private capital

flows toward building a decarbonized future economy aligned with

environmentally sustainable practices and investments. Corporate taxation

has potential to influence corporate behavior in this regard by incentivizing

green business choices and investments in renewable energy and clean

technologies.

This paper will explore how environmental taxes and tax incentives can be

leveraged to promote corporate sustainability practices and the transition to

Carbon Pricing through Carbon Taxes

Implementing a carbon pricing mechanism through taxes on greenhouse gas

(GHG) emissions is one of the most direct policy approaches to make

polluters pay while encouraging emissions reductions. By raising the cost of

carbon, a carbon tax creates financial incentives for businesses to switch to

cleaner alternatives and invest in energy efficiency projects:

- Studies show a carbon tax of $25-50 per ton or more would significantly

reduce CO2 emissions cost-effectively across major industries like energy,

transportation, manufacturing etc.

- Revenue from carbon taxes can be used to lower other taxes, fund

transition programs or return funds directly to citizens through dividends.

- Administering various policies at multiple policy levels requires ongoing

monitoring and synchronization.

- Public acceptance depends on equitable revenue recycling and protecting

Conclusion

through carbon taxes or emission trading schemes, green tax incentives and

credits, fossil fuel subsidy reform and potentially border carbon adjustments

all provide meaningful policy levers for motivating businesses' transition

flows toward building a decarbonized future economy aligned with

With climate change posing one of the greatest threats facing humanity,

leveraged to promote corporate sustainability practices and the transition to

a low-carbon economy. It will analyze various policy options such as carbon

pricing, accelerated depreciation of green assets, tax credits for

Carbon Pricing through Carbon Taxes

transition programs or return funds directly to citizens through dividends.

- Experience from British Columbia, Canada shows carbon taxes do lead to

emissions reductions and economic growth continues post-implementation

However, businesses may view carbon taxes unfavorably and pass added

costs to consumers. International policy coordination is also difficult given

- Accelerated depreciation allows faster write-offs of capital investments in

- Tax credits reward specific sustainability activities, e.g. $/metric ton of

carbon permanently sequestered or $/kWh of renewable electricity

generated.

- Subsidies for electric vehicles or green bonds make non-polluting options

Studies indicate these tailored incentives have motivated investments in

annually despite their contribution to climate change. Eliminating or

gradually phasing out these subsidies creates both fiscal headroom and

- Removing subsides makes renewable energy comparatively affordable and

more attractive to corporates looking to power operations from clean

- A 2016 IMF study showed phasing out energy subsidies in 20 countries

could lower emissions projections by over 5% annually and raise $2.9 trillion

in revenue each year (Coady et. al., 2019).

To prevent carbon leakage and maintain competitiveness of domestic

industries, some proposals advocate for border carbon adjustments (BCAs) in

the form of carbon duties on imports from nations without carbon pricing:

- BCAs in theory protect competitiveness of countries complying with carbon

pricing while pressuring others to follow suit for unfettered access to such

markets.

- Challenges lie in WTO compatibility, complexity of setting exact duty rates,

While likely to face legal challenges, BCA designs that balance

- Higher costs may cause some industries to relocate production to areas

Overcoming these hurdles demands careful long-term policy design and

cooperative global action on carbon pricing and standards to facilitate an

influence on corporate sustainability efforts and investments in clean

technologies when implemented collectively at a large scale. Carbon pricing

through carbon taxes or emission trading schemes, green tax incentives and

credits, fossil fuel subsidy reform and potentially border carbon adjustments

away from carbon-intensive practices. While challenges remain around

competitiveness concerns and international cooperation, taxation gives

governments an indispensable tool for steering trillions in private capital

flows toward building a decarbonized future economy aligned with

environmental imperatives. With the climate crisis demanding immediate

action across all fronts, policymakers would do well to optimize the role of

tax systems in driving the business case for sustainability.

With climate change posing one of the greatest threats facing humanity,

has potential to influence corporate behavior in this regard by incentivizing

green business choices and investments in renewable energy and clean

friendly corporate practices.

Implementing a carbon pricing mechanism through taxes on greenhouse gas

(GHG) emissions is one of the most direct policy approaches to make

polluters pay while encouraging emissions reductions. By raising the cost of

carbon, a carbon tax creates financial incentives for businesses to switch to

reduce CO2 emissions cost-effectively across major industries like energy,

transportation, manufacturing etc.

However, businesses may view carbon taxes unfavorably and pass added

Targeted tax incentives and subsidies lower the after-tax cost of sustainable

investments and practices for businesses, thus incentivizing eco-friendly

- Tax credits reward specific sustainability activities, e.g. $/metric ton of

carbon permanently sequestered or $/kWh of renewable electricity

cleantech, green buildings and waste management across industries in

Worldwide governments subsidize fossil fuels worth over $500 billion

annually despite their contribution to climate change. Eliminating or

- Removing subsides makes renewable energy comparatively affordable and

more attractive to corporates looking to power operations from clean

- A 2016 IMF study showed phasing out energy subsidies in 20 countries

could lower emissions projections by over 5% annually and raise $2.9 trillion

in revenue each year (Coady et. al., 2019).

While politically contentious, reforming distortionary fossil fuel subsidies is a

practical and internationally equitable policy countries have committed to

under the Paris Agreement. Subsidy savings could also fund cleantech

industries, some proposals advocate for border carbon adjustments (BCAs) in

the form of carbon duties on imports from nations without carbon pricing:

pricing while pressuring others to follow suit for unfettered access to such

markets.

While likely to face legal challenges, BCA designs that balance

competitiveness and environmental imperatives could aid long-term policy

cooperation if introduced judiciously with major trading partners. Overall

Challenges and Limitations

While tax policies offer promising opportunities to engage businesses as

- Higher costs may cause some industries to relocate production to areas

with lax climate policies, though evidence suggests impact is smaller than

- Administering various policies at multiple policy levels requires ongoing

Conclusion

influence on corporate sustainability efforts and investments in clean

technologies when implemented collectively at a large scale. Carbon pricing

through carbon taxes or emission trading schemes, green tax incentives and

credits, fossil fuel subsidy reform and potentially border carbon adjustments

all provide meaningful policy levers for motivating businesses' transition

This paper will explore how environmental taxes and tax incentives can be

Carbon Pricing through Carbon Taxes

polluters pay while encouraging emissions reductions. By raising the cost of

carbon, a carbon tax creates financial incentives for businesses to switch to

cleaner alternatives and invest in energy efficiency projects:

- Studies show a carbon tax of $25-50 per ton or more would significantly

reduce CO2 emissions cost-effectively across major industries like energy,

transportation, manufacturing etc.

- Revenue from carbon taxes can be used to lower other taxes, fund

- Experience from British Columbia, Canada shows carbon taxes do lead to

emissions reductions and economic growth continues post-implementation

(Murray & Rivers, 2015).

competitiveness concerns. But a gradually increasing, revenue-neutral

carbon tax remains one of the most powerful market-based options for

Green Tax Incentives and Subsidies

Targeted tax incentives and subsidies lower the after-tax cost of sustainable

investments and practices for businesses, thus incentivizing eco-friendly

actions:

clean assets like renewable energy infrastructure or low-emission vehicles

over 3-5 years instead of 10-20.

away from carbon-intensive practices. While challenges remain around

competitiveness concerns and international cooperation, taxation gives

governments an indispensable tool for steering trillions in private capital

flows toward building a decarbonized future economy aligned with

This paper will explore how environmental taxes and tax incentives can be

leveraged to promote corporate sustainability practices and the transition to

- Studies show a carbon tax of $25-50 per ton or more would significantly

reduce CO2 emissions cost-effectively across major industries like energy,

- Revenue from carbon taxes can be used to lower other taxes, fund

transition programs or return funds directly to citizens through dividends.

(Murray & Rivers, 2015).

However, businesses may view carbon taxes unfavorably and pass added

costs to consumers. International policy coordination is also difficult given

actions:

over 3-5 years instead of 10-20.

- Tax credits reward specific sustainability activities, e.g. $/metric ton of

carbon permanently sequestered or $/kWh of renewable electricity

generated.

- Subsidies for electric vehicles or green bonds make non-polluting options

artificially competitive against incumbent fossil fuels.

stranded assets.

Worldwide governments subsidize fossil fuels worth over $500 billion

annually despite their contribution to climate change. Eliminating or

gradually phasing out these subsidies creates both fiscal headroom and

carbon price signals:

- Removing subsides makes renewable energy comparatively affordable and

sources.

practical and internationally equitable policy countries have committed to

subsidies and transition support for impacted communities.

Border Carbon Adjustments

To prevent carbon leakage and maintain competitiveness of domestic

industries, some proposals advocate for border carbon adjustments (BCAs) in

- BCAs in theory protect competitiveness of countries complying with carbon

pricing while pressuring others to follow suit for unfettered access to such

While likely to face legal challenges, BCA designs that balance

competitiveness and environmental imperatives could aid long-term policy

While tax policies offer promising opportunities to engage businesses as

agents of environmental change, certain limitations and challenges exist:

- Interactions with existing tax codes can reduce incentives if uncoordinated

with targeted credits or accelerator provisions.

- Administering various policies at multiple policy levels requires ongoing

- Public acceptance depends on equitable revenue recycling and protecting

low-income groups from added energy cost burdens.

flows toward building a decarbonized future economy aligned with

environmental imperatives. With the climate crisis demanding immediate

action across all fronts, policymakers would do well to optimize the role of

tax systems in driving the business case for sustainability.

With climate change posing one of the greatest threats facing humanity,

This paper will explore how environmental taxes and tax incentives can be

leveraged to promote corporate sustainability practices and the transition to

a low-carbon economy. It will analyze various policy options such as carbon

pricing, accelerated depreciation of green assets, tax credits for

sustainability projects and elimination of fossil fuel subsidies. Challenges

Implementing a carbon pricing mechanism through taxes on greenhouse gas

- Revenue from carbon taxes can be used to lower other taxes, fund

transition programs or return funds directly to citizens through dividends.

costs to consumers. International policy coordination is also difficult given

Targeted tax incentives and subsidies lower the after-tax cost of sustainable

investments and practices for businesses, thus incentivizing eco-friendly

clean assets like renewable energy infrastructure or low-emission vehicles

over 3-5 years instead of 10-20.

- Tax credits reward specific sustainability activities, e.g. $/metric ton of

carbon permanently sequestered or $/kWh of renewable electricity

generated.

- Subsidies for electric vehicles or green bonds make non-polluting options

Studies indicate these tailored incentives have motivated investments in

cleantech, green buildings and waste management across industries in

Fossil Fuel Subsidy Reform

gradually phasing out these subsidies creates both fiscal headroom and

carbon price signals:

- Removing subsides makes renewable energy comparatively affordable and

more attractive to corporates looking to power operations from clean

sources.

- A 2016 IMF study showed phasing out energy subsidies in 20 countries

could lower emissions projections by over 5% annually and raise $2.9 trillion

While politically contentious, reforming distortionary fossil fuel subsidies is a

markets.

While tax policies offer promising opportunities to engage businesses as

agents of environmental change, certain limitations and challenges exist:

- Higher costs may cause some industries to relocate production to areas

with lax climate policies, though evidence suggests impact is smaller than

initially thought (Devereux & Loretz, 2013).

- Interactions with existing tax codes can reduce incentives if uncoordinated

with targeted credits or accelerator provisions.

monitoring and synchronization.

- Public acceptance depends on equitable revenue recycling and protecting

Overcoming these hurdles demands careful long-term policy design and

cooperative global action on carbon pricing and standards to facilitate an

In summary, thoughtfully crafted tax policies stand to exert significant

influence on corporate sustainability efforts and investments in clean

credits, fossil fuel subsidy reform and potentially border carbon adjustments

all provide meaningful policy levers for motivating businesses' transition

away from carbon-intensive practices. While challenges remain around

With climate change posing one of the greatest threats facing humanity,

transitioning the global economy to a more sustainable model has become

imperative. While governments and regulators play an important role

through policies and regulations, businesses must also adopt

environmentally sustainable practices and investments. Corporate taxation

This paper will explore how environmental taxes and tax incentives can be

leveraged to promote corporate sustainability practices and the transition to

a low-carbon economy. It will analyze various policy options such as carbon

pricing, accelerated depreciation of green assets, tax credits for

sustainability projects and elimination of fossil fuel subsidies. Challenges

around border carbon adjustments and policy harmonization will also be

examined to evaluate the efficacy of taxation as a tool to motivate eco-

friendly corporate practices.

carbon, a carbon tax creates financial incentives for businesses to switch to

cleaner alternatives and invest in energy efficiency projects:

- Experience from British Columbia, Canada shows carbon taxes do lead to

emissions reductions and economic growth continues post-implementation

(Murray & Rivers, 2015).

However, businesses may view carbon taxes unfavorably and pass added

costs to consumers. International policy coordination is also difficult given

competitiveness concerns. But a gradually increasing, revenue-neutral

carbon tax remains one of the most powerful market-based options for

motivating corporate environmental action.

Green Tax Incentives and Subsidies

Targeted tax incentives and subsidies lower the after-tax cost of sustainable

carbon permanently sequestered or $/kWh of renewable electricity

generated.

- Subsidies for electric vehicles or green bonds make non-polluting options

artificially competitive against incumbent fossil fuels.

Studies indicate these tailored incentives have motivated investments in

cleantech, green buildings and waste management across industries in

countries offering them (Deloitte, 2020). However, designing them optimally

requires detailed tracking and sunset provisions to avoid creating new

stranded assets.

Fossil Fuel Subsidy Reform

pricing, accelerated depreciation of green assets, tax credits for

sustainability projects and elimination of fossil fuel subsidies. Challenges

around border carbon adjustments and policy harmonization will also be

Implementing a carbon pricing mechanism through taxes on greenhouse gas

(GHG) emissions is one of the most direct policy approaches to make

polluters pay while encouraging emissions reductions. By raising the cost of

carbon, a carbon tax creates financial incentives for businesses to switch to

cleaner alternatives and invest in energy efficiency projects:

- Studies show a carbon tax of $25-50 per ton or more would significantly

However, businesses may view carbon taxes unfavorably and pass added

costs to consumers. International policy coordination is also difficult given

competitiveness concerns. But a gradually increasing, revenue-neutral

Green Tax Incentives and Subsidies

actions:

clean assets like renewable energy infrastructure or low-emission vehicles

over 3-5 years instead of 10-20.

- Tax credits reward specific sustainability activities, e.g. $/metric ton of

carbon permanently sequestered or $/kWh of renewable electricity

generated.

artificially competitive against incumbent fossil fuels.

Studies indicate these tailored incentives have motivated investments in

stranded assets.

gradually phasing out these subsidies creates both fiscal headroom and

carbon price signals:

sources.

While politically contentious, reforming distortionary fossil fuel subsidies is a

To prevent carbon leakage and maintain competitiveness of domestic

industries, some proposals advocate for border carbon adjustments (BCAs) in

the form of carbon duties on imports from nations without carbon pricing:

pricing while pressuring others to follow suit for unfettered access to such

markets.

While likely to face legal challenges, BCA designs that balance

cooperation if introduced judiciously with major trading partners. Overall

they reflect the interconnected nature of climate policy across borders.

- Administering various policies at multiple policy levels requires ongoing

monitoring and synchronization.

- Public acceptance depends on equitable revenue recycling and protecting

Conclusion

through carbon taxes or emission trading schemes, green tax incentives and

credits, fossil fuel subsidy reform and potentially border carbon adjustments

all provide meaningful policy levers for motivating businesses' transition

flows toward building a decarbonized future economy aligned with

With climate change posing one of the greatest threats facing humanity,

leveraged to promote corporate sustainability practices and the transition to

a low-carbon economy. It will analyze various policy options such as carbon

pricing, accelerated depreciation of green assets, tax credits for

Carbon Pricing through Carbon Taxes

transition programs or return funds directly to citizens through dividends.

- Experience from British Columbia, Canada shows carbon taxes do lead to

emissions reductions and economic growth continues post-implementation

However, businesses may view carbon taxes unfavorably and pass added

costs to consumers. International policy coordination is also difficult given

- Accelerated depreciation allows faster write-offs of capital investments in

- Tax credits reward specific sustainability activities, e.g. $/metric ton of

carbon permanently sequestered or $/kWh of renewable electricity

generated.

- Subsidies for electric vehicles or green bonds make non-polluting options

Studies indicate these tailored incentives have motivated investments in

annually despite their contribution to climate change. Eliminating or

gradually phasing out these subsidies creates both fiscal headroom and

- Removing subsides makes renewable energy comparatively affordable and

more attractive to corporates looking to power operations from clean

- A 2016 IMF study showed phasing out energy subsidies in 20 countries

could lower emissions projections by over 5% annually and raise $2.9 trillion

in revenue each year (Coady et. al., 2019).

To prevent carbon leakage and maintain competitiveness of domestic

industries, some proposals advocate for border carbon adjustments (BCAs) in

the form of carbon duties on imports from nations without carbon pricing:

- BCAs in theory protect competitiveness of countries complying with carbon

pricing while pressuring others to follow suit for unfettered access to such

markets.

- Challenges lie in WTO compatibility, complexity of setting exact duty rates,

While likely to face legal challenges, BCA designs that balance

- Higher costs may cause some industries to relocate production to areas

Overcoming these hurdles demands careful long-term policy design and

cooperative global action on carbon pricing and standards to facilitate an

influence on corporate sustainability efforts and investments in clean

technologies when implemented collectively at a large scale. Carbon pricing

through carbon taxes or emission trading schemes, green tax incentives and

credits, fossil fuel subsidy reform and potentially border carbon adjustments

away from carbon-intensive practices. While challenges remain around

competitiveness concerns and international cooperation, taxation gives

governments an indispensable tool for steering trillions in private capital

flows toward building a decarbonized future economy aligned with

environmental imperatives. With the climate crisis demanding immediate

action across all fronts, policymakers would do well to optimize the role of

tax systems in driving the business case for sustainability.

With climate change posing one of the greatest threats facing humanity,

has potential to influence corporate behavior in this regard by incentivizing

green business choices and investments in renewable energy and clean

friendly corporate practices.

Implementing a carbon pricing mechanism through taxes on greenhouse gas

(GHG) emissions is one of the most direct policy approaches to make

polluters pay while encouraging emissions reductions. By raising the cost of

carbon, a carbon tax creates financial incentives for businesses to switch to

reduce CO2 emissions cost-effectively across major industries like energy,

transportation, manufacturing etc.

However, businesses may view carbon taxes unfavorably and pass added

Targeted tax incentives and subsidies lower the after-tax cost of sustainable

investments and practices for businesses, thus incentivizing eco-friendly

- Tax credits reward specific sustainability activities, e.g. $/metric ton of

carbon permanently sequestered or $/kWh of renewable electricity

cleantech, green buildings and waste management across industries in

Worldwide governments subsidize fossil fuels worth over $500 billion

annually despite their contribution to climate change. Eliminating or

- Removing subsides makes renewable energy comparatively affordable and

more attractive to corporates looking to power operations from clean

- A 2016 IMF study showed phasing out energy subsidies in 20 countries

could lower emissions projections by over 5% annually and raise $2.9 trillion

in revenue each year (Coady et. al., 2019).

While politically contentious, reforming distortionary fossil fuel subsidies is a

practical and internationally equitable policy countries have committed to

under the Paris Agreement. Subsidy savings could also fund cleantech