KPMG: UK is carbon tax world leader but innovation laggard
The UK has a world leading carbon tax but is lagging behind on implementing other green measures, according to a new report.
Financial advisors KPMG ranked 21 of the world’s major economies according to how well they use taxation to incentivise low carbon investment. While the UK is number 1 for climate taxation, it seems the government isn’t doing enough to incentive new and innovative ways to lower emissions.
UK leads climate taxation
KPMG puts the UK top of the class for policies which penalise carbon dioxide emissions. But it’s unclear if the government would want the accolade, as it continues to try and convince industry that green policies don’t put them at an economic disadvantage.
The UK’s main climate taxation policy is the carbon price floor. The price floor sets a minimum price companies have to pay to emit carbon dioxide – currently £15.70 per tonne of carbon dioxide. If the EU carbon price is below this – it is currently around £2.50 per tonne – companies pay the difference to the UK government. The policy is unpopular with both industry and environmental groups that say it is simply a way of making lots of cash for the Treasury without having any real impact on emissions.
The government also charges industry and agriculture to use certain fuels under the Climate Change Levy. But companies can get up to a 90 per cent discount on the levy if they meet certain energy efficiency measures as part of individual Climate Change Agreements with the Department of Energy and Climate Change (DECC).
Despite front-page headlines claiming green taxes mean large price hikes for households, DECC says they actually only account for about 2 per cent of a household’s energy bill and will save households money in the long run.
Incentivising innovation
While the UK may have a strong system to tax industrial emissions, it scores more poorly on incentivising low carbon investment.
The report suggests the UK isn’t doing enough to incentivise the development of renewable energy, despite a government commitment to get 15 per cent of the UK’s energy consumption from renewable sources by 2020. The US is the world leader on this front – with the tax credit helping wind power grow 28 per cent in 2012. Congress savedup to 37,000 jobs by extending the wind production tax credit at the end of 2012, after companies had begun to scale back in anticipation of the credit’s expiration.
The UK also scored poorly on support for greener buildings, which KPMG says is “the largest low cost emissions reduction opportunity for governments worldwide”. This is despite DECC offering financial incentives to “transform Britain’s homes” through the Green Deal. Take-up for the scheme was initially slow, with question marks still hanging over whether or not it is really a good deal for homeowners.
So while the UK may be at the vanguard of carbon taxation, there is a danger the UK’s new ‘world #1 badge’ may mark it out for further criticism that the government risks harming the economy by going it alone.