My editorial from the February issue of International Tax Review
“We all want to change the world”, John Lennon once sang.
For environmentalists, carbon taxes and emissions trading systems have long been a key tool in changing the world for the better. With the polar ice caps and life-giving Andean glaciers melting, African crops failing and sea levels rising, urgent action is needed for nations to bring their carbon emissions under control to fight climate change. For that to happen, tax measures are essential to wean the economy off its dependency on highly polluting fossil fuels.
From this year, at least 33 countries and 18 sub-national jurisdictions are expected to be operating carbon pricing schemes. This covers around 850 million people, 30% of the global economy, and 20% of global emissions.
The EU Emissions Trading Scheme (ETS) covers all 27 member states as well as Iceland, Liechtenstein and Norway. Australia launched its carbon tax last July and with its plans to link the scheme to the EU carbon market, the beginnings of a global carbon trading system can be seen. China will be piloting a carbon tax in seven key provinces this year and there are whispers that it too may eventually look to link its market to the EU’s.
Carbon taxes are here to stay.
But a greener economy is not bad news for business. And carbon taxes, in the long run, can save companies money.
The rise of carbon pricing may present an initial cost to businesses, but over time it will encourage them to bring down their emissions and increase their energy efficiency, which should help them weather the storm of future price hikes in oil and gas, which have always been vulnerable to wars, scarcities and geopolitical crises.
Carbon taxes will improve production processes, encourage green investment and spur innovation on new environmentally-friendly products.
Most notably, in an age where avoidance scandals are an almost everyday occurrence, carbon taxes are one of the few taxes governments encourage companies to avoid through effective planning.
The green business is the ethical business and ethics in this day and age have a huge impact on corporate reputation. Imagine a system that lets you look good because you avoid taxes!
Business should be demanding simple taxes that are easy to comply with and a clear price for carbon. But they should not be afraid of this new system as we stand on the verge of the first global carbon market.
Emissions pricing and trading alone will not be enough for governments to meet their climate change commitments. But they will help transform companies into key drivers of green innovation, sustainable investment and environmentally-friendly activity.
When businesses look to the future they may see how carbon taxes will help save them money. And when future generations look back, they may see how business helped save the world.