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Taxation, Innovation and the Environment

image of Taxation, Innovation and the Environment

Solving the world’s environmental problems could take a significant toll on economic growth if only today’s technologies are available. We know that  innovation – the creation and adoption of new cleaner technologies and know-how – provides a means to achieve local and global environmental goals at significantly lower costs. Innovation is also a major driver of economic growth.  

OECD governments are increasingly using environmentally related taxes because they are typically one of the most effective policy tools available. Exploring the relationship between environmentally related taxation and innovation is critical to understanding the full impacts of this policy instrument as well as one potential facet of “green growth.” By putting a price on pollution, do environmentally related taxes spur innovation? What types of innovation result? Does the design of the tax play a critical role? What is the effect of this innovation? 

In analysing these questions, this report draws on case studies that cover Japan, Korea, Spain, Sweden, Switzerland, the United Kingdom, Israel and others. It covers a wide set of environmental issues and technologies, as well as the economic and policy contexts. The research methods range from econometric analysis to interviews with business owners and executives. The report also explores the use of environmentally related taxes in OECD countries and outlines considerations for policymakers when implementing these taxes. 

Green growth policies can stimulate economic growth while preventing environmental degradation, biodiversity loss and unsustainable natural resource use. The results from this publication will contribute to the Green Growth Strategy being developed by the OECD as a practical policy package for governments to harness the potential of greener growth.  

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Annex H. The UK's Climate Change Levy and Climate Change Agreements: An Econometric Approach

This case study examines the role of the UK’s Climate Change Levy (and associated negotiated Climate Change Agreements with industry) on innovation. Firms with CCAs, who were granted an 80% reduction in the rate of the CCL, tended to be more energy intensive and use more electricity (which was taxed the highest within the levy scheme) than similar firms paying the full rate. Firms paying the full rate did not appear to experience adverse financial or economic effects. Moreover, CCA firms were significantly less likely to innovate than firms paying the full rate, including in areas related to climate change.

English

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