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Greening the tax system: how tax policy could support net-zero

New CBI paper calls for the government to harness the tax system to accelerate net-zero progress by business.

11 Mar 2021, 2 min read

Business plays a crucial role in meeting a net-zero emissions target by 2050. But it will only be able to deliver if it is supported by the right policy frameworks.

Regulatory frameworks will be key given the pressures on public finances, but fiscal measures, including environmental taxes and tax incentives, can play an important role in driving change. The CBI is calling for the government to review how the UK tax system could be harnessed to accelerate the reduction of emissions.

We set out a number of principles to guide the government in ‘greening’ the tax system. Green taxes must be targeted to a pollutant or a polluting behaviour (with clear definitions being provided of both and at those points in the value chain where taxes can feasibly drive decisions which will result in lower carbon emissions); government needs to provide long-term certainty of environmental tax policies to underpin the investment decisions by consumers and businesses; the use of carrots and sticks by the government should be balanced to drive change.

The CBI also recommends three key areas the government should focus on to accelerate business progress towards net-zero:

  1. A quicker uptake of zero emission vehicles (via a company car tax (BiK); capital allowances; Vehicle Excise Duty; and VAT measures).
  2. More energy efficiency, low carbon heat and use of renewables in buildings (via business rates system; capital allowances; structures and buildings allowance (SBA), and VAT on energy saving materials).
  3. Innovation in industrial emissions reduction (via maximising the deployment of R&D tax credit).

In the long-term, more certainty is needed around transport and emissions taxation. A complete review into the future of fuel duty must be conducted and it is important that long-term certainty is provided by the government on the approach to carbon taxation in the UK.

Most importantly, climate change policy frameworks must support long-term confidence for investment. We are therefore calling for the government to publish a tax policy roadmap which places achieving net-zero by 2050 at its core.

Read the full report and for more information on the CBI’s work on green taxes, please contact Milda Jardine.