Green taxes designed to drive action
Green taxes are not intended to be paid indefinitely, but to drive action.
That was the message from Alenka Turnsek, EY EMEIA Sustainability Tax Services Leader, on Day One of the LBS-Stanford Global Tax Conference held in June at London Business School (LBS).
The meeting saw industry experts and academics from leading global institutions gather at the School’s Sussex Place campus to discuss significant taxation issues facing society.
“We always say to tax directors, green taxes are not there to be paid indefinitely,” she said.
“Green taxes can be seen as a recognition of externalities triggered by a company’s activities – think about waste and pollution for example. By addressing these externalities, and by default, reducing and eventually eliminating your green taxes bill, the result is positive for your company, society and the environment.”
Governments are using a variety of instruments, including taxation and incentives, to realise their sustainability agenda. But the mix can be very different, with the European Union (EU) currently taking the most diverse approach to deploying the instruments at their disposal in their ambition to be climate-neutral by 2050, including regulations, taxes, levies, subsidies, grants, funding and reporting disclosures.
“When we look at the UK, the envisaged mix is not dissimilar, but the implemented and considered instruments so far have been more skewed toward reporting and taxes,” Ms Turnsek said.
“The US tends to prefer incentives as their main instruments of choice – so you’ll see the Inflation Reduction Act is full of incentives. If we look at other regions, tax and regulations feature a little bit more prominently.”
The focus of these instruments remains on climate, with resource preservation measures emerging fast. But loss of biodiversity and pollution remain critical issues to address, she said.
There were approximately 3000 environmental exemptions and taxes as of March 2023 in place across the regulatory landscape, most focussed on carbon and carbon reduction. That number is expected to increase significantly as more measures are introduced to address broader sustainability issues.
Ms Turnsek also emphasised the importance of comprehensive strategies that address the broad range of challenges faced across industries, pointing to the European Green Deal (EGD) as an example.
“It’s got two environmental and one social objective.”
She said while the EGD is not flawless, it is comprehensive and requires EU-based companies (and beyond in some cases, for instance the Carbon Border Adjustment Mechanism) to address different aspects of sustainability.
“Elements to address include: climate change, resource preservation through circular economy, eliminate pollution, and stave off biodiversity loss. Companies know they need to take action, because every sector is not only included, but impacted too.”
"Seeing the EGD as a kind of blueprint provides a detailed yet sufficiently broad context for companies to prepare their transition roadmaps - not only to address the requirements, but also to plan for their businesses' resilience and socio-environmental prosperity."
Later in the conference proceedings, Dr Achim Pross, Deputy Director of the OECD Centre for Tax Policy and Administration, took to the stage with fellow panellists Timothy Power, Deputy Director of Corporate Tax at HM Treasury, Pat Brown, Washington National Tax Services Co-Leader at PwC US, Linda Herms, Business Tax Partner, Ernst & Young Belastingadviseurs LLP, and Professor Christoph Spengel of the University of Mannheim, for a discussion on international corporate tax reform and global tax equality.
They shared their views on the landmark 2021 reform requiring globally operating firms to pay at least 15% corporate taxes in each country worldwide. While industry leaders lament regulatory burdens, academics and policymakers see the reform as a huge step towards greater international tax fairness.
Academic papers addressing tax and public finance in developing countries, carbon leakage to developing countries, effectiveness of emissions taxes in tackling air pollution, and wealth taxation and very wealthy migration were also presented and interactively discussed during the two-day event.
Marcel Olbert, Assistant Professor of Accounting at LBS and co-director of the conference, said: “It was extremely stimulating to have leading experts from around the world to discuss the most crucial tax policy topics at LBS. The participants brought in so much energy – I am so grateful for everyone’s input.
“I am sure lots of exciting research and, hopefully, policy action was triggered by our event. Huge thanks to our school’s leadership team for supporting the event and to Rebecca Lester from Stanford GSB for co-organizing and co-funding the event.”.
More information on the LBS-Stanford Global Tax Conference 2023 is available online.
The views reflected in this article are the views of the authors and do not necessarily reflect the views of the global EY organization or its member firms.
