Enabling a just transition: the vital role of tax policy

Publication
October 22, 2024

How tax policy can help to deliver a just transition by influencing communities’ behaviour and driving business decisions.

Based on empirical evidence and independent research, this report delves into the role that tax policy can play in enabling just transition. The research highlights the critical role of revenue recycling mechanisms in facilitating a just transition including:

Well-Framed Tax Policies - Effective tax policies are essential to incentivize eco-friendly practices and internalise the societal costs of pollution.

2. Mitigating social economic impact - The report emphasises the need for mechanisms to mitigate the negative impacts of climate policies on vulnerable populations. Without such mechanisms, the fiscal cost of climate policy could increase, and public support for the green transition could wane.

3. Global case studies - The report includes case studies from countries like Germany and initiatives like the Just Energy Transition Partnership (JETP), which provide financial aid for structural changes in regions impacted by the energy transition.

4. Consideration for Future Policies -Governments should consider ring-fencing environmental taxes for use in the conservation of the environment. Further, with the introduction of environmental taxes, governments should consider lowering other taxes that have a distortionary effect in the economy. This approach could enhance the effectiveness and public acceptance of green tax policies.

Our report also examines the trade-offs associated with different revenue recycling mechanisms – when incorporated into the tax system.

Please explore how our research can support your journey in delivering a just transition. We’d be delighted to have a chance to speak to you on how we can assist you through your sustainable business strategy.