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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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Executive Summary

The world is facing a host of environmental challenges. Some are confined to local areas and may be the result of a few polluters, such as mercury emissions to air or sewage discharges in watercourses; others occur at the global level and are brought about by millions of different actors, such as with the emissions of greenhouse gases. While these environmental issues can be thought of as negative side-effects of countries’ economic development, it is important to consider as well that as countries grow richer, more dense, and more technically advanced, the desire and ability to confront these challenges grows as well.

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