The US tops the ranking primarily due to its extensive program of federal tax incentives for energy efficiency, renewable energy and green buildings.
When green tax penalties alone are considered, the US drops to 14th, indicating that US green tax policy is weighted heavily in favor of incentives.
Japan is ranked second overall but, in contrast to the US, scores higher on green tax penalties than it does on incentives. Japan also leads the ranking for tax measures to promote the use and manufacture of green vehicles.
The UK ranks third and has a green tax approach balanced between penalties and incentives. The UK scores most highly in the area of carbon and climate change.
France occupies fourth place in the overall ranking and is unusual in that its green tax policy is more heavily weighted towards penalties than incentives.
South Korea ranks fifth overall and, in common with the US, has a green tax system weighted towards incentives rather than penalties. South Korea leads the ranking for green innovation which suggests that South Korea is especially active in using its tax code to encourage green research and development.
China ranks sixth with a green tax policy balanced between incentives and penalties and focused on resource efficiency (energy, water and materials) and green buildings.
The US uses green tax penalties less than other Western developed nations, apart from Canada. The only countries in the Index that impose fewer green tax penalties than the US or Canada are emerging economies such as Brazil, India, Mexico and Russia. China and South Africa are both more active than the US or Canada in imposing federal green tax penalties.
Australia ranks relatively high in the penalties index (sixth), in large part due to its recently introduced carbon price mechanism. However, it ranks lower (19th) in the incentives index. This is because the Australian government does not use tax incentives as widely as many other governments to drive green corporate behavior. The Australian government favors instead non-tax tools such as grants, loans and direct investment. It has allocated billions of dollars to various funding programs particularly in the areas of clean energy, water efficiency and green innovation.
Similarly, Germany and Finland rank higher in the penalties index (ninth and fourth respectively) than they do in the incentives index (17th and 21st respectively) because tax is used less commonly there than in some other countries as a tool to address green policy objectives. Germany favors low-interest loan programs and capital subsidies, especially in the areas of energy efficiency, green vehicles and green buildings. Finland focuses on green innovation and provides significant grant funding through Tekes – the Finnish Funding Agency for Technology & Innovation.
Further details of tax incentives and penalties offered by the 21 countries analyzed for the Index are contained in sections on key areas of green policy.
The 21 countries can also be grouped into four quartiles (as follows) with quartile one showing the countries most active in using tax as a green policy tool and quartile four showing those that are least active.
||US, Japan, France, South Korea, China
- Highest use of green tax
- High number of incentives and penalties places in Quartile 1
- US and South Korea weighted towards incentives
- France weighted towards penalties
- Japan, UK and China balanced between incentives and penalties.
||Ireland, Netherlands, Belgium, India, Canada, Spain
- Moderate to high use of green tax
- Wealth of wind, solar and water recourses can help to encourage investment in green technology.
||Australia, South Africa, Germany, Finland, Singapore
- Moderate use of green tax
- Strong use of non-tax funding eg. significant grant programs in Australia (ARENA), Finland (Tekes) and Singapore (GREET).
||Brazil, Argentina, Mexico, Russia
- Relatively low use of tax as a green policy tool
- Only one of the four has a green tax penalty (Russia’s water tax)
- Other funding programs may be used, eg. Argentina’s feed-in tariffs program, Brazil’s FUNTEC R&D grants.
Source: The KPMG Green Tax Index, 2013.