Lessons from 15 Years of Experience with the Dutch Tax Allowance for Energy Investments for Firms
Since 1997 the Netherlands has a tax allowance scheme introduced to promote investments in energy saving technologies and sustainable energy production. This Energy Investment Tax Allowance (EIA in Dutch) reduces up-front investment costs for firms investing in the newest energy saving and sustainable energy technologies. The basic design of the EIA has remained the same over the past 15 years. Firms investing in technologies listed in the annually updated ‘Energy List’ may deduct some of the investment costs from their taxable profits. The EIA may also reduce search costs by investors to find particular technologies because of the Energy List which is used to consider eligibility for the subsidy. This Energy List contains generic technologies that meet a certain energy-saving standard or a selection of novel, but proven, technologies with a higher energy-saving potential than conventional technologies. Over the past 15 years, the use of the EIA has been affected by a number of changes, mainly due to exogenous factors, such as interactions with other policy instruments, rising oil and gas prices, and the economic crisis since 2007. Despite this turbulence and changes in government focus, the EIA is still part of the Dutch energy policy mix. Our evaluation of the EIA contains four lessons. First, the use of tax revenues to subsidise investment in energy-efficient technologies and renewable energy is not very different from using on-budget subsidies if budgetary rules require sufficient accountability of such tax expenditures. At the beginning of the scheme, a lack of accountability of tax expenditures contributed to budgetary turbulence. A number of budget overruns in later periods were not related to budget accountability issues, but to changes outside the EIA. Second, incentive compatibility problems of the EIA are of concern but seem to be manageable. The main weakness of the tax allowance is the difficulty to prevent free-riders from receiving subsidies, even though subsidy effectiveness has improved considerably over the years. Third, the use of a dynamic technology list makes the regulation flexible, allowing policy to refocus and apply tighter standards if necessary. The list also reduces the information asymmetry between supply and demand of new technologies and helps suppliers of energy-saving or sustainable energy technologies to overcome the well-known ‘valley of death’. Finally, the design of a subsidy scheme should pay sufficient attention to the likely interaction with other policy instruments, in particular other subsidy schemes aimed at complementary objectives. The turbulence with the EIA over the 2001–2007 period was mainly caused by fluctuations in the application of other instruments.
|Date of creation:||Jun 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.feem.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Eric Malm, 1996. "An Actions-Based Estimate of the Free Rider Fraction in Electric Utility DSM Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 41-48.
- Franz Wirl & Wolfgang Orasch, 1998. "Analysis of United States' Utility Conservation Programs," Review of Industrial Organization, Springer, vol. 13(4), pages 467-486, August.
- Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012.
"The Environment and Directed Technical Change,"
American Economic Review,
American Economic Association, vol. 102(1), pages 131-66, February.
- Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2009. "The Environment and Directed Technical Change," NBER Working Papers 15451, National Bureau of Economic Research, Inc.
- Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2010. "The Environment and Directed Technical Change," Working Papers 2010.93, Fondazione Eni Enrico Mattei.
- Acemoglu, Daron & Aghion, Philippe & Bursztyn, Leonardo & Hemous, David, 2011. "The Environment and Directed Technical Change," CEPR Discussion Papers 8660, C.E.P.R. Discussion Papers.
- Acemoglu, Daron & Aghion, Philippe & Bursztyn, Leonardo & Hemous, David, 2010. "The Environment and Directed Technical Change," Seminar Papers 762, Stockholm University, Institute for International Economic Studies.
- van Soest, Daan P., 2005. "The impact of environmental policy instruments on the timing of adoption of energy-saving technologies," Resource and Energy Economics, Elsevier, vol. 27(3), pages 235-247, October.
- DeCanio, Stephen J. & Watkins, William E., 1998.
"Information processing and organizational structure,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 36(3), pages 275-294, August.
- Stephen J. DeCanio & William E. Watkins, . "Information Processing and Organizational Structure," Computing in Economics and Finance 1997 163, Society for Computational Economics.
- Don Fullerton & Ann Wolverton, 1997. "The Case for a Two-Part Instrument: Presumptive Tax and Environmental Subsidy," NBER Working Papers 5993, National Bureau of Economic Research, Inc.
- Franz Wirl, 2000. "Lessons from Utility Conservation Programs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 87-108.
- Aalbers, Rob & van der Heijden, Eline & Potters, Jan & van Soest, Daan & Vollebergh, Herman, 2009.
"Technology adoption subsidies: An experiment with managers,"
Elsevier, vol. 31(3), pages 431-442, May.
- Rob Aalbers & Eline van der Heijden & Jan Potters & Daan van Soest & Herman Vollebergh, 2007. "Technology Adoption Subsidies: An Experiment with Managers," Tinbergen Institute Discussion Papers 07-082/3, Tinbergen Institute.
- Aalbers, R.F.T. & van der Heijden, E.C.M. & Potters, J.J.M. & van Soest, D.P. & Vollebergh, H.R.J., 2009. "Technology adoption subsidies : An experiment with managers," Other publications TiSEM 3fd22e8e-1390-40c9-8031-f, Tilburg University, School of Economics and Management.
- Glenn Jenkins & RANJIT LAMECH, 1992. "Fiscal Policies To Control Pollution: International Experience," Development Discussion Papers 1992-01, JDI Executive Programs.
- repec:cup:cbooks:9780521322249 is not listed on IDEAS
- Frank J. Convery, 2011. "Reflections--Energy Efficiency Literature for Those in the Policy Process," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 172-191, Winter.
- Vollebergh, Herman R.J., 2008. "Lessons from the polder: Energy tax design in The Netherlands from a climate change perspective," Ecological Economics, Elsevier, vol. 64(3), pages 660-672, January.
- repec:cup:cbooks:9780521311120 is not listed on IDEAS
- Arguedas, Carmen & van Soest, Daan P., 2009. "On reducing the windfall profits in environmental subsidy programs," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 192-205, September.
- JoÃ«lle Noailly & Svetlana Batrakova & Ruslan Lukach, 2010. "Home green home; a case study of inducing energy-efficient innovations in the Dutch building sector," CPB Document 198, CPB Netherlands Bureau for Economic Policy Analysis.
When requesting a correction, please mention this item's handle: RePEc:fem:femwpa:2013.56. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (barbara racah)
If references are entirely missing, you can add them using this form.