Taxation in Support of Green Transition. An Overview and Assessment of Existing Tax Practices to Reduce Greenhouse Gas Emissions

The European Commission has set ambitious targets to make Europe the first carbon-neutral continent by 2050 and intends to reduce greenhouse gas emissions by 55 percent by 2030 compared to 1990 levels. Environmental tax measures help incentivise behavioural change and thus contribute to achieving these policy goals. The objective of this study is to define a set of concrete policy recommendations for national tax systems to enhance efforts to reduce greenhouse gas emissions in the EU effectively. The study conducts a literature review on tax measures targeting greenhouse gas emissions and builds an inventory of measures – consisting of taxes and tax incentives – across the EU 27, the UK, and five other countries. Subsequently, the benchmarking methodology assessing environmental effectiveness and political viability of tax measures is developed with an aim of identifying good practice examples. The results of the study illustrate that taxes and beneficial tax incentives are increasingly used tools to support green transition. However, there is still room to improve their design to render them more effective in reducing greenhouse gas emissions. Moreover, striking a successful balance between the effectiveness of tax measures and their wider political implications remains a challenge.