The KPMG Green Tax Index 2013: An Exploration of Green Tax Incentives and Penalties

The KPMG
Green Tax Index

2013
An exploration of green tax
incentives and penalties
kpmg.com/greentax
Contents
Introduction: the growth of tax as a green policy tool 01
About the KPMG Green Tax Index 02
Methodology 03
The Index: country rankings 04
Key findings 05
The KPMG Green Tax Index: quartiles 06
Ranking by policy category 07
Green tax incentives and penalties across 21 countries 08
Implications for business leaders, tax and sustainability professionals 10
Energy efficiency 11
Carbon & climate change 14
Green innovation 17
Renewable energy & fuels 20
Green buildings 23
Green vehicles 25
Water efficiency 29
Material resource efficiency & waste management 31
Pollution control & ecosystem protection 34
About KPMG’s green tax services 36
© 2013 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Introduction:
the growth of tax as a green policy tool
Green tax is big news
In September 2012, The Japan Times reported that the penalties of relevance to corporate sustainability. At least 30 of
Japanese government is to introduce a new tax to curb carbon these have been introduced since January 2011.
emissions. It is expected to generate revenue of 262 billion
Japanese yen (JPY) (USD2.7 billion) from fiscal year 2016.1 There is evidence to suggest that not all corporate tax teams
are fully aware of the landscape of green tax in which they
Also in 2012, China announced increases in resource taxes on operate and the incentives that may be on offer. For example,
six minerals, including iron and tin ore. Reports attributed the in March 2012, Bloomberg BNA surveyed tax accountants and
increases to China’s policy objective of conserving domestic tax lawyers in the US to gauge knowledge and awareness of
mineral resources and the environment.2 tax incentives for clean energy.4 Two-thirds of those interviewed
were unaware of how US clean energy tax credits work.
In February 2013, the US Department of Energy announced
USD150 million in Advanced Energy Manufacturing Tax Credits This is a concern. As environmental and social challenges gather
for clean energy and energy efficiency manufacturing projects pace, future business value depends on carving competitive
across the US.3 advantage out of complex and unpredictable risks. In most
sectors it requires transformational change.
These are just three recent examples of how governments
worldwide are using tax as a tool to address the challenges of The investments that can drive this change and secure
social and environmental change. competitive advantage may never be made if green tax
systems are not fully understood and used. Investments that
The global population continues to rise. Billions more people struggle to make a case on a pre-tax basis, can flourish after
have access to higher-consumption lifestyles. Global food and green tax analysis. Business leaders should not underestimate
water supplies are under increasing pressure. Energy supplies the potential of green tax incentives to deliver efficiency and
are, for many, increasingly insecure and prices more volatile. productivity benefits, drive innovation and contribute to the
Material resources are becoming less easily available and bottom line.
competition for them is increasing. Ecosystems are declining,
forests are disappearing and the climate is warming. The KPMG Green Tax Index aims to raise awareness of the
rapidly evolving global green tax landscape and to encourage
Governments, in response, are attempting to lower carbon chief financial officers, tax directors and chief sustainability
emissions; reduce, reuse and recycle waste; encourage officers to work together in navigating it. Collaboration between
efficient use of water, energy and material resources; and the tax, finance and sustainability functions is important to
promote green innovation. ensure that business takes the right decisions to create future
They cannot achieve these policy objectives without changing value in a resource constrained world.
business and consumer behavior; corporations contribute to the
challenges and can therefore play a key role in addressing them.
As governments increasingly use tax as a tool to achieve green

policy goals and make corporate behavior more sustainable, the
global green tax landscape, in the form of both incentives and
penalties, is evolving rapidly and becoming more complex.
KPMG International has analyzed 21 countries for this report

and found that all of them have green tax systems that warrant Greg Wiebe Yvo de Boer
attention from corporate tax and sustainability teams. The KPMG’s Global KPMG’s Special Global Advisor:
research identified over 200 individual tax incentives and Head of Tax Climate Change & Sustainability
1
http://www.japantimes.co.jp/news/2012/09/29/business/green-tax-to-come-into-force-in-october/. Accessed 14 April 2013.
2
http://www.bloomberg.com/news/2012-02-17/china-raises-resources-tax-on-iron-tin-molybdenum-production.html. Accessed 14 April 2013.
3
http://apps1.eere.energy.gov/news/progress_alerts.cfm/pa_id=837. Accessed 14 April 2013.
4
http://www.bna.com/tax-professionals-unfamiliar-pr12884908294/. Accessed 19 March 2013.
The KPMG Green Tax Index 2013 1
About the
KPMG GreenTax Index
A high ranking in KPMG has created the KPMG Green in the countries that rank higher in
the Index means that Tax Index to increase awareness the Index, are advised to familiarize
of the complex, fragmented and themselves fully with the details of
the government is more
rapidly evolving green tax landscape those countries’ green tax systems
active than others in worldwide. It aims to encourage and to include after-tax effects in their
using its tax system companies to explore the opportunities investment modeling calculations.
to drive sustainable of green tax incentives, and to reduce
Consideration of after-tax effects can
business and achieve exposure to green tax penalties.
also help a company avoid paying
green policy objectives. A high ranking in the Index means unnecessary penalties, which in itself
that the government is more active can provide additional funding and
than others in using its tax system to capital for investments.
drive sustainable business and achieve
green policy objectives. It does not The KPMG Green Tax Index, as well as
necessarily mean that a country is providing a guidepost to businesses,
‘greener’ than others. offers an overview of the green tax
landscape around the world and a
Every country listed on the Index has broad summary of what governments
a green tax system that deserves are putting in place. For this reason, it
attention. Countries without any green may also be useful to governments,
tax incentives or penalties are not particularly those in the early stages of
included in the sample of 21 countries formulating green tax policies.
reviewed here.
Companies that operate or plan to

operate in these markets, particularly
Note: The data in this report was compiled as of 23 April 2013.
2 The KPMG Green Tax Index 2013
Methodology
The KPMG Green Tax Index focuses on 21 major economies as indicative, not absolute, in providing a view of governments
around the world that KPMG believes represent a major that are most active in using tax as a green policy tool.
share of global corporate investment activity:
The following principles were used to create this Index.
Argentina France Russia
Australia Germany Singapore • Points have been awarded or deducted to reflect: the ease or
complexity of the incentive claim process; long or short-term
Belgium India South Africa
availability of incentives; and the flexibility to transfer or carry
Brazil Ireland South Korea forward tax benefits.
Canada Japan Spain
China Mexico UK • Tax penalties score highest because companies cannot avoid
complying with penalty legislation.
Finland Netherlands US
KPMG member firms have analyzed the tax systems in • Tax credits score higher than deductions and capital
these countries to determine the number and range of allowances. Arguably tax credits are worth more to taxpayers
incentives and penalties that influence corporate activity in and also cost a government more (as a direct and permanent
relation to nine green policy areas: reduction in tax revenue).
• Energy efficiency • Penalties or incentives designed for small businesses,

• Carbon & climate change households or private individuals are not included.
• Green innovation • Scoring is limited to instruments that are part of a country’s
• Renewable energy & fuels tax code, i.e. tax penalties, credits, deductions, enhanced
• Green buildings allowances, accelerated depreciation and indirect tax
• Green vehicles benefits. Many governments use other incentives such
as grants, subsidies and soft loans to influence corporate
• Water efficiency
behavior. The Index highlights notable examples where
• Material resource efficiency & waste management appropriate, but does not score them individually due to the
• Pollution control & ecosystem protection. high number and fluidity of these programs.
Some tax penalties and incentives apply to more than one of the • Scoring is limited to national tax codes although noteworthy
policy areas above. Discretion has been used to decide which examples of sub-national tax penalties and incentives are
section of this report they are covered in. Scores should be taken given in the accompanying narrative.
Scores have been attributed to tax penalties and incentives according to arguable value and potential to influence behavior,
as follows:
Tax/incentive type Points

Carbon tax 4
Tax credits: green specific 3
R&D tax credits: green specific 3
Tax penalties with direct green application (other than carbon taxes) 2
National/international carbon cap-and-trade system 2
Capital allowances/accelerated depreciation/deductions: green specific 2
R&D tax deductions/accelerated depreciation: green specific 2
General R&D tax incentives: not green specific but for which green innovation projects are eligible 1
Indirect tax incentives, e.g. value-added tax, excise taxes, customs duty 1
Other green specific tax benefits with limited application (e.g. limited flexibility or short-term application) 1
Sub-national carbon cap-and-trade system 0.5
Existence of sub-national incentives in any category 0.5
Source: The KPMG Green Tax Index, 2013.
The Index:
country rankings
OVERALL RANKING TAX INCENTIVES ONLY TAX PENALTIES ONLY
US 1 US 1 France 1
Japan 2 South Korea 2 Japan 2
UK 3 China 3 UK 3
France 4 India 4 Finland 4
South Korea 5 UK 5 China 5
China 6 Canada Ireland
6
Ireland 7 Netherlands Spain 6
Netherlands 8 Japan 8 Australia
Belgium 9 Ireland 9 Netherlands
India 10 Belgium 10 South Korea
Spain Singapore 11 South Africa 9
11
Canada Brazil Belgium
12
South Africa 13 South Africa Germany
Singapore 14 Argentina 14 US 14
Finland Spain 15 Singapore 15
15
Germany France 16 Canada 16
Australia 17 Germany 17 Russia
17
Brazil 18 Mexico 18 India
Argentina 19 Australia 19 Argentina
Mexico 20 Russia 20 Brazil 19
Russia 21 Finland 21 Mexico
Key findings
• The US tops the ranking primarily due or Canada are emerging economies
Japan is ranked to its extensive program of federal such as Brazil, India, Mexico and
second overall but, in tax incentives for energy efficiency, Russia. China and South Africa are
contrast to the US, scores renewable energy and green both more active than the US or
higher on green tax buildings. Canada in imposing federal green
tax penalties.
penalties than it does on • When green tax penalties alone
incentives. Japan also are considered, the US drops to • Australia ranks relatively high in
leads the ranking for tax 14th, indicating that US green tax the penalties index (sixth), in large
measures to promote the policy is weighted heavily in favor of part due to its recently introduced
incentives. carbon price mechanism. However,
use and manufacture of it ranks lower (19th) in the incentives
green vehicles. • Japan is ranked second overall but, index. This is because the Australian
in contrast to the US, scores higher government does not use tax
on green tax penalties than it does incentives as widely as many other
on incentives. Japan also leads the governments to drive green corporate
ranking for tax measures to promote behavior. The Australian government
the use and manufacture of green favors instead non-tax tools such as
vehicles. grants, loans and direct investment.
• The UK ranks third and has a green It has allocated billions of dollars to
tax approach balanced between various funding programs, particularly
penalties and incentives. The UK in the areas of clean energy, water
scores most highly in the area of efficiency and green innovation.
carbon and climate change. • Similarly, Germany and Finland rank
• France occupies fourth place in the higher in the penalties index (ninth
overall ranking and is unusual in that and fourth respectively) than they do
its green tax policy is more heavily in the incentives index (17th and 21st
weighted towards penalties than respectively) because tax is used less
incentives. commonly there than in some other
countries as a tool to address green
• South Korea ranks fifth overall and, in policy objectives. Germany favors
common with the US, has a green tax low-interest loan programs and capital
system weighted towards incentives subsidies, especially in the areas of
rather than penalties. South Korea energy efficiency, green vehicles
leads the ranking for green innovation and green buildings. Finland focuses
which suggests that South Korea is on green innovation and provides
especially active in using its tax code significant grant funding through
to encourage green research and Tekes – the Finnish Funding Agency
development. for Technology & Innovation.
• China ranks sixth with a green tax Further details of tax incentives and
policy balanced between incentives penalties offered by the 21 countries
and penalties and focused on analyzed for the Index are contained in
resource efficiency (energy, water the sections on key areas of green policy.
and materials) and green buildings.
The 21 countries can also be grouped
• The US uses green tax penalties into four quartiles (as follows), with
less than other Western developed quartile 1 showing the countries most
nations, apart from Canada. The only active in using tax as a green policy tool
countries in the Index that impose and quartile 4 showing those that are
fewer green tax penalties than the US least active.
The KPMG Green Tax Index: quartiles
Key: Quartile 1
Quartile 2
Quartile 3
Quartile 4
Quartile 1 US, Japan, UK, France, South Korea, China • Highest use of green tax
• High number of incentives and penalties places in Quartile 1
• US and South Korea weighted towards incentives
• France weighted towards penalties
• Japan, UK and China balanced between incentives and penalties.
Quartile 2 Ireland, Netherlands, Belgium, India, Canada, Spain • Moderate to high use of green tax
• Wealth of wind, solar and water resources can help to
encourage investment in green technology.
Quartile 3 Australia, South Africa, Germany, Finland, Singapore • Moderate use of green tax
• Strong use of non-tax funding, e.g. significant grant programs in
Australia (ARENA), Finland (Tekes) and Singapore (GREET).
Quartile 4 Brazil, Argentina, Mexico, Russia • Relatively low use of tax as a green policy tool
• Only one of the four has a green tax penalty (Russia’s water tax)
• Other funding programs may be used, e.g. Argentina’s feed-in-
tariffs program, Brazil’s FUNTEC R&D grants.
Rankings by policy category
ENERGY EFFICIENCY GREEN VEHICLES
Netherlands 1 Japan 1
Germany France
2 2
Singapore UK
China, Russia, South Africa, US 4 US 4
Belgium, China, Ireland, Spain 5
CARBON & CLIMATE CHANGE
UK 1 WATER EFFICIENCY
Australia, Finland, South Korea 2 South Korea 1
China 5 China 2
South Africa
3
GREEN INNOVATION UK
South Korea 1 Belgium
Canada 2 Russia 5
Brazil 3 Singapore
Argentina, Belgium, France, US 4

MATERIAL RESOURCE EFFICIENCY/WASTE
MANAGEMENT
RENEWABLE ENERGY & FUELS
France 1
US 1
China 2
Japan 2
Belgium
Canada 3
South Korea 4
India
4 UK
Ireland
POLLUTION CONTROL & ECOSYSTEM PROTECTION

GREEN BUILDINGS
Singapore 1
US 1 Spain 2
Germany France, Mexico, South Africa,UK, US 3
2
Netherlands
Belgium
China 4
France
Green tax incentives and penalties across 21 countries
Country Argentina Australia Belgium Brazil Canada
Energy efficiency Purchase of energy efficient equipment: incentives
Carbon taxes (national) x
Carbon taxes (sub-national) x

Cap-and-trade (national) x x
Carbon & climate change
Cap-and-trade (sub-national) x
Other carbon emission penalties
Carbon sequestration/capture & storage incentives x
General innovation/R&D incentives for which green technologies may be eligible x x x x x
Carbon capture and storage: innovation/R&D incentives
Energy efficiency: innovation/R&D incentives x

Renewable energy and fuel: innovation/R&D incentives x
Water efficient technologies: innovation/R&D incentives

Green innovation
Material resources: innovation/R&D
Green vehicles: innovation/R&D incentives
Waste/recycling: innovation/R&D incentives x
Green buildings: innovation/R&D incentives
Other green innovation/R&D incentives x
Production of renewable energy and fuels: incentives x x x
Renewable energy & fuels Renewable energy: incentives for direct investment in renewable energy companies
Taxes/penalties on conventional (fossil) fuels x x
Incentives to build/occupy green buildings

Green buildings
Other taxes/penalties/incentives related to green buildings x
Vehicles: taxes/penalties on environmentally unfriendly vehicles x
Green vehicles Vehicles: incentives for production of green vehicles
Vehicles: incentives for the purchase/lease/use of green vehicles x x
Taxes/penalties on water use (national)
Incentives to produce or purchase water efficient equipment or water recycling equipment

Water efficiency
Incentives to reuse/recycle/treat waste water x
Other incentives for the efficient use of water
Taxes/penalties on the use of material resources
Taxes/penalties on packaging x
Material resource efficiency & Taxes/penalties on consumption x

waste management Incentives for the efficient use of material resources x
Taxes/penalties on commercial waste

Incentives for waste recycling/reuse
Taxes/penalties on pollution: air, water, ground, etc.
Pollution control & Taxes/penalties on land use change

ecosystem protection Incentives to encourage companies to conserve or rehabilitate ecosystems/forests x x
Incentives to invest in environmental protection/rehabilitation
Grants/loans x x x x x
Non-tax incentives
Feed-in tariffs x x
China Finland France Germany India Ireland Japan South Korea Mexico Netherlands Russia Singapore South Africa Spain UK US
x x x x x x x x x x x
x x x x x x
x
x x x x x x x x x
x x x
x x
x x x x x x x x x x x x x
x x x x x x x x x x
x x
x x x x x x x x x
x x x x x
x x x x x x x x
x x
x x x x x x x x x x x x x x
x x
x x x x
x x x
x x
x x x
x x x x
x x x x
x x x
x x x x x x x x x x x x x x x x
x x x x x x x x x x
Implications for business leaders,
tax and sustainability
professionals
The global landscape of green tax company identified approximately Build understanding
is both complex and dynamic, as USD40 million of opportunities related of green tax opportunities
the KPMG Green Tax Index shows. to energy efficient building deductions,
across the business and
Hundreds of green tax penalties are R&D deductions and credits and other
levied and incentives offered around deductions. develop communication
the world. This number runs well into and collaboration between
the thousands when sub-national KPMG in South Africa assisted a operations, tax, finance,
client to apply for a tax allowance for
instruments and non-tax measures such sustainability and other
as grants, subsidies and loans are taken a bio-diesel manufacturing plant. The
project was subsequently approved by relevant functions.
into account.
South Africa’s Department of Trade and
It is also clear from the Index that Industry as a Greenfield project with that could reduce current and future
governments are using tax beyond the preferred status, adding a net tax benefit financial exposure.
policy areas of energy and carbon to of 252 million South African rand (ZAR)
address resource efficiency more broadly (USD28.5 million). • Review all projects in the pipeline to
and to spur green innovation. The green assess whether green tax incentives
tax landscape is expanding constantly. This shows there are significant have been missed.
opportunities to be grasped beyond cost
Simply being aware of all the relevant reduction. Green tax incentives can make • Ensure that all proposals for sustainability
instruments in place in all the markets or break projects that can help companies programs have return-on-investment
where a company operates is in itself reshape their business and develop new calculated on an after-tax basis.
a significant challenge, particularly for markets, products and services. • Build understanding of green tax
multinationals. Resources and attention opportunities across the business
are often focused first and foremost on Yet too often these green tax
opportunities fall through the cracks and develop communication and
compliance with penalty legislation. collaboration between operations,
between operations, tax, finance and
This means that, too often, insufficient sustainability functions. tax, finance, sustainability and other
importance is attached to strategic relevant functions.
responses that could reduce exposure In order for companies to overcome
these issues and take advantage of the • Engage with governments and
to those penalties. industry associations to provide a
available benefits of green tax systems,
Furthermore, without a proactive KPMG’s network of member firms business view of how green tax
approach to green tax incentives, recommends that business leaders, tools can best be designed to help
opportunities can be missed and the boards and heads of tax, finance and companies assist governments in
sums involved can be significant. sustainability work together on the achieving their green policy goals.
following. The KPMG Green Tax Index is not intended
For example, KPMG in the US has helped
a multinational consumer products • Ensure a system is in place to monitor as the final word in how investment
company to review its planned investment the landscape of green tax incentives decisions are made, but it can help
in an R&D facility. Opportunities of and penalties worldwide and keep to focus attention on a challenge that
approximately USD30 million were the business informed of relevant many multinationals struggle with.
identified related to energy credits, R&D developments and their potential And that, perhaps, presents the area of
tax deductions and credits, fixed assets usefulness. greatest opportunity: to bring a greater
and other incentives. understanding of the entire financial picture
• Review the company’s response to of green investments, pre and post-tax.
Similarly, also in the US, a review of green tax penalties (such as carbon
energy efficient data centers and taxes and cap-and-trade systems) and
production facilities for a large software explore strategies and investments
Energy
efficiency
ENERGY EFFICIENCY equipment resulting in a net benefit of
around 10 percent of the total investment.
Netherlands 1
It was reported in July 2012 that the EIA
Germany
2 had helped to significantly reduce energy
Singapore consumption and carbon dioxide (CO2)
China, Russia, South Africa, US 4 emissions in the Netherlands and had
encouraged Dutch companies to invest
around EUR1.5 billion (USD1.8 billion) in
Just over half (11) of the countries costs, support sustainable economic energy efficiency in 2011, an increase of
analyzed for the Index have tax incentives growth, and reduce contributions to 45 percent on the previous year.7
in place to promote energy efficiency in climate change.
Companies in the Netherlands can
business. (Note that incentives specific
This is because energy efficiency is also apply for a deduction of up to
to green vehicles or green buildings are
inexpensive and easily scalable when 36 percent of investments in energy
covered separately in those sections).
compared with more costly approaches efficient equipment under the
The bulk of these incentives are enhanced such as the development of large-scale environmental investment allowance
capital allowances or accelerated renewable power generation. “Milieuinvesteringsaftrek” known as
depreciation to encourage the purchase MIA. The maximum investment costs
of energy efficient equipment. A report by the United Nations that are taken into account are EUR25
Foundation found that if the G8 and five million (USD32 million) per qualifying
Evidence on the success of such major emerging economies were to asset, and assets granted MIA
initiatives is sparse but it has been double their rate of energy efficiency deduction must be retained for at least
reported, for example, that the Dutch improvement, energy demand in each of 5 years. The EIA and the MIA cannot
Energy Investment Allowance (EIA) the G8 countries would be reduced by 20 be applied simultaneously to the same
scheme helped to increase business percent by 2030, a reduction equivalent to assets, however assets can qualify
investment in energy efficiency by 45 the energy produced by 2,000 coal-fired simultaneously for VAMIL and MIA.
percent in 2012 over the previous year.5 power plants.6
Germany
Other approaches, taken by Germany and Netherlands
Russia among others, involve exemptions In Germany there are taxes on the use
from other taxes (such as property or VAMIL (or the Netherlands’ Accelerated of electricity (StromSteuerGesetz)
energy taxes) on the basis of energy Depreciation of Environmental and fuels (EnergieSteuergesetz).
efficiency performance. South Africa has Investments Measure) provides Until 2012, energy intensive sectors
made energy efficiency a key criterion for accelerated depreciation and deductions were exempted from those taxes or
potentially generous tax allowances for on qualifying energy efficient assets. benefited from reduced rates. From
major manufacturing projects under its Depreciation of up to 75 percent of 2013, companies in these sectors
Section 121 Tax Allowance Incentive. the investment costs is available and must have an environmental or energy
maximum investment costs are management system in place to benefit
Encouraging industry and consumers to 25 million euro (EUR) per asset from the reduced electricity tax rates.
use energy more efficiently is widely seen (USD32 million). Additionally, the sector as a whole must
as the first policy choice for governments achieve an annual energy efficiency
to ensure the security of supply, protect In addition, the EIA provides a deduction
improvement of 1.3 percent or they will
businesses and consumers against rising of 41.5 percent of investment costs in
pay more electricity tax.
energy efficient and renewable energy
5
http://www.tax-news.com/news/Dutch_Investment_Tax_Boosts_Renewable_Energy_56469.html. Accessed 21 March 2013.
6
R
ealizing the Potential for Energy Efficiency. United Nations Foundation, 2007.
7
http://www.tax-news.com/news/Dutch_Investment_Tax_Boosts_Renewable_Energy_56469.html. Accessed 21 March 2013.
Singapore The Russian government also provides US
a capital allowance for approved energy
Singapore provides a 100 percent capital efficient fixed assets for corporate profits Manufacturers of energy efficient
allowance for approved energy saving tax purposes. The capital allowance residential appliances, such as
equipment and technology. amount can be doubled for certain dishwashers and refrigerators, are
assets. Investments in energy efficient provided with a tax credit. The credit
Singapore also has an Investment is calculated based on the type of
Allowance (IA) scheme which provides equipment also qualify for accelerated
depreciation at twice the standard rate appliance manufactured and its efficiency
further allowances of up to 100 percent on performance. For example, tax credits
costs of approved energy efficient plant for profits tax purposes.
of up to USD75 per unit are provided
and machinery, in addition to standard or
accelerated capital allowance claims.
South Africa for dishwashers, up to USD225 per unit
for clothes washers, and up to USD200
South Africa’s Section 121 Tax Allowance for refrigerators. The maximum credit
China Incentive is designed to encourage the amount is USD25 million per taxpayer.
Enterprises that purchase and use development of major manufacturing This incentive, which began in 2007, will
qualified energy saving equipment can projects in the country and offers expire on 31 December 2013.
apply for a tax deduction of 10 percent support for both capital investment and
of the amount invested. If the deduction training. While not specific to energy Other incentives discussed in other
is not utilized, it can be carried forward efficiency, this tax allowance is directly sections of this report include tax
for 5 years. China also provides a relevant because energy efficiency deductions for the installation of
custom duty and value-added tax (VAT) improvements are one of the key criteria energy efficient lighting and heating,
exemption for certain imported energy on which projects are assessed (due ventilation and air conditioning (HVAC)
efficient equipment. in part to the current and future energy systems in commercial buildings
supply constraints the country faces). To (see Green Buildings on page 23).
China is also supporting the development qualify under this criterion projects must
of an energy services sector in the demonstrate a minimum 10 percent
Other energy
country by providing attractive tax energy saving sustained for a minimum
incentives for energy services companies of 4 years. The incentive offers a tax
(ESCOs) and energy users. allowance of between 35 percent and
100 percent up to a maximum of ZAR900 efficiency incentives
For example, a qualified ESCO taking part million (USD97 million) for greenfield
in an energy performance contracting projects with ’preferred’ status. The UK offers a 100 percent first year
(EPC) project is eligible for a tax allowance for specified energy saving
exemption in the first 3 years and a Some 13 projects have been approved plant and machinery. Loss-making
50 percent tax reduction (an effective rate (at the time of writing) under Section companies can opt for an alternative
of 12.5 percent) over the following 3 years. 121 with a total investment value 19 percent tax cash credit up to a
In addition, ESCOs can claim exemption of approximately ZAR22 billion maximum of 250,000 United Kingdom
from VAT on the transfer of assets to (USD2.4 billion). pounds (GBP) (USD380,000).
clients at the end of a project, and assets
can be transferred as if fully depreciated South Africa has also announced, but India offers accelerated depreciation at
for corporate income tax purposes. (at the time of writing) has not yet put the rate of 80 percent on a long list of
into effect, an Energy Efficiency Savings energy savings and renewable energy
Similarly, energy users in EPC projects Tax Allowance (Section 12L, Income Tax devices, including but not limited to
can deduct reasonable expenses for Act) which proposes a tax deduction boilers, furnaces and heat pumps.
corporate income tax purposes including based on the amount of energy
service fees and the cost of assets. saved by the taxpayer in the year of Similarly, Ireland provides accelerated
assessment. The deduction is proposed capital allowances of 100 percent
Russia to be calculated at ZAR0.45 (USD0.05) in the year of expenditure for the
per kilowatt hour (or equivalent) of purchase of a wide range of energy
Russian taxpayers are entitled to a 3-year efficient equipment including lighting,
exemption on corporate property tax for energy saved. The date of introduction is
not yet known but it is widely expected controls, HVAC and building energy
newly introduced energy efficient assets management systems.
such as air conditioners and elevators. to be in 2015.
Non-tax energy to grants to help the coal mining
industry implement energy saving and
Singapore provides funding for up
to 20 percent of qualifying costs,
efficiency incentives carbon abatement technologies. capped at 4 million Singapore dollars
(SGD) (USD3.2 million) per project,
In addition, the Coal Sector Jobs Package through its Grants for Energy Efficient
Many governments also drive (CSJP) will provide approximately Technologies (GREET) program.
corporate energy efficiency through AUD1.25 billion (USD1.33 billion) over
non-tax incentives including grants, 6 years to the most emissions-intensive In Finland a new energy efficiency
subsidies and loans. or ‘gassy’ coal mines to reduce fugitive grants program begins in 2013 to
emissions through the exploration and replace the expired Energy Aid
Australia has committed substantial
implementation of available abatement program. Typically, the amount of
sums to such programs including
technologies. funding provided is 15-25 percent of
approximately 800 million Australian
the total project.
dollars (AUD) (USD837 million) to China provides subsidies through
its Clean Technology Investment central and provincial government In Belgium, regional energy efficiency
Program, which provides grants to agencies respectively. The standard subsidies of up to 50 percent of project
help Australian manufacturers invest in rate of subsidies at the central level is costs are offered to commercial and
energy efficient capital equipment and 240 Chinese yuan renminbi (CNY) industrial organizations.
low emission processes and products. (USD39) per ton of standard coal saved
Access to grant funding is competitive and no less than CNY60 (USD10) per ton Spain is currently designing national
based on the energy savings to be of coal saved at the provincial level. As of and regional measures to help the
made and other criteria. April 2013 there were over 2,300 qualified country achieve its EU obligation
ESCOs in China. These companies can of a 20 percent reduction in energy
Australia has also committed consumption by 2020. Grant funding
apply for financial subsidies on energy
approximately AUD200 million of up to 40 percent of project costs
management contracts entered into on
(USD210 million) to a similar energy and a soft loans program are expected.
or after 1 January 2012. However, such
efficiency grants program specific to
financial subsidies should be taxable
the food and foundry industries, and a
with an ESCO for corporate income
further AUD70 million (USD73 million)
tax purposes.
Carbon &
climate change
CARBON & CLIMATE CHANGE
UK 1
Australia, Finland, South Korea 2
China 5
Almost all of the 21 countries analyzed penalties and incentives are proliferating generators. It is intended to provide an
for the Index have some sort of carbon- around the world. They can be complex incentive to invest in low-carbon power
related tax mechanism in place. to manage and the chances of escaping generation by providing greater support
However, each country is unique in the such charges in a global economy are and certainty to the carbon price. The
way that it manages its policy response becoming more remote. In the long CPF was introduced from 1 April 2013 at
to climate change and carbon emissions term, corporations are likely to be around GBP15.70/ton(t)CO2 (USD25.51/
reduction and, as a result, the use of tax subject to some form of carbon limitation tCO2) and will increase at a linear rate to
penalties and incentives varies widely. penalties or incentives wherever they GBP30/tCO2 (USD48.74/tCO2) in 2020,
operate. Complying with penalties and and to GBP70/tCO2 (USD113.74/tCO2)
True carbon taxes are currently the limiting financial exposure requires in 2030.
exception rather than the rule. Australia careful management.
has implemented a carbon price In addition, large businesses in the UK
mechanism which has a fixed price for UK that consume a certain amount of energy
the first 3 years, and will then transition must participate in the Carbon Reduction
to a flexible price trading scheme in 2015. As well as participating in the EU’s ETS, Commitment Energy Efficiency Scheme
South Africa is close to bringing in its the UK imposes the Climate Change (CRC). This scheme is designed to target
own carbon tax and China has committed Levy – an environmental tax levied on CO2 emissions not already covered by
to do so but delayed its implementation. electricity, gas, solid fuels including coal CCAs and the EU’s ETS.
and liquefied petroleum gas (LPG). The
Carbon-based tax penalties on high- levy is designed to encourage energy Organizations eligible for the CRC must
emission fuels and energy sources, such efficiency to help the UK meet its buy allowances for the energy they use
as gasoline and coal, are more frequently targets for cutting GHGs, including CO2 (electricity, gas, gasoline, diesel or other
implemented. Also, increasingly seen emissions. fuels) and penalties for non-compliance
are emissions trading systems (ETS) are significant.
whether international, such as the EU Energy intensive industries may
ETS, sub-national such as the provincial receive up to a 90 percent discount on Australia
trading systems being developed in the Climate Change Levy in return for
meeting energy efficiency or carbon Australia’s carbon price mechanism was
China, or municipal, such as Tokyo’s cap- passed by parliament on 8 November
and-trade program. While cap-and-trade saving targets as part of Climate Change
Agreements (CCAs). Eligible sectors for 2011 and commenced on 1 July 2012.
systems are not technically taxes, they The Australian government expects the
have been included in this Index as they CCAs include steel, chemicals, cement
and agricultural businesses, such as tax to drive innovation and investment in
have become the de-facto alternative clean technology.
carbon penalty to carbon tax. intensive pig and poultry-rearing.
The UK’s Carbon Price Floor (CPF) is a In January 2013, it was reported that
The message for corporations is that carbon emissions from Australia’s
carbon and climate change-related tax tax on emitting CO2 paid by electricity
electricity sector had fallen sharply GHG emissions and related authorities The message for
under the first 6 months of the tax supervise performance of companies corporations is that carbon
with increases in energy efficiency and in the scheme. Whenever companies
renewable energy generation. It was exceed GHG emissions, the Ministry of
and climate change-related
also reported that the government’s Environment imposes penalties. tax penalties and incentives
revenues from the tax will be less than are proliferating around the
expected due to the drop in emissions.8 China world.
Australia’s carbon pricing system starts China has determined the amount of
at a fixed price of AUD23 (USD24) per its tax penalty, eventually expecting
ton, rising by 2.5 percent per year until to introduce a levy of CNY5-CNY10 South Africa’s carbon tax program,
30 June 2015 when it will transition to an (USD0.80 to USD1.61) per ton of though not yet in force, is close to
ETS. Thereafter, the price will be set by carbon. The tax was proposed in China’s completion at the time of writing this
the market, and the number of permits latest Five-Year Plan and is intended to report, and implementation is likely in
issued by the government each year will apply to carbon emissions from fossil 2015. The country’s 2013-14 budget
be capped. fuels. However at the time of drafting review proposed that the tax will initially
this report, the country had delayed be levied at ZAR120 (USD13) per ton of
Finland implementation of the program.9 CO2 and will increase by 10 percent per
annum during the first implementation
Finland’s carbon tax applies to multiple
period of 2015–2020.
industries. This tax is based on the CO2
emissions of fuels including gasoline,
diesel, biofuels, coal, coal brickets
Other carbon tax A benchmark of carbon emissions per
penalties
unit of output has been proposed, and
and solid fuels, but not wood or other may be defined at an industry sector or
biomass used in energy production. sub-sector level.
India’s carbon tax is specific to coal only
South Korea and was first introduced in July 2010. It Companies that emit less CO2 than
imposes a tax of 50 Indian rupees (INR) the benchmark will receive additional
Since the establishment of the
(USD1.07) per ton of coal produced or tax-free allowances, whilst those
Presidential Committee on Green
imported into India. The revenue raised is performing below the standard will
Growth in 2009, South Korea enacted
earmarked for the National Clean Energy have their free allowances reduced.
the Framework Act on Low Carbon
Green Growth and introduced a national funds for research and innovation in clean
greenhouse gas (GHG) emissions target energy technologies and environmental
management scheme. The Ministry of remedial programs.
Environment sets the maximum limit of
http://www.theaustralian.com.au/national-affairs/climate/emissions-drop-signals-fall-in-carbon-tax-take/story-e6frg6xf-1226559632995. Accessed 21 March 2013.

8
http://www.bloomberg.com/news/2013-03-06/china-backing-away-from-carbon-tax-start-in-2013-official-says.html. Accessed 25 March 2013.

9
Cap-and-trade systems Japan enforces an additional tax participate in an international carbon
are more widely used by on petroleum and coal (on top of its trading system.
petroleum and coal tax) based on carbon
governments than carbon emissions. This additional tax is part of the Sub-national cap-and-trade programs
taxes. Of the 21 countries Japanese government’s Carbon Dioxide exist in Canada, China (expected to be
analyzed for this Index, Tax of Global Warming Countermeasure implemented in 2013), Japan and the US.
12 have a national system of in the 2012 tax reform, which aims to
some sort or participate in an control energy-originated CO2.
international carbon trading Carbon
system.
Sub-national sequestration
carbon taxes incentives and
Sub-national carbon taxes exist in Canada
penalties
and the US, among others. For example, Carbon sequestration incentives are
Quebec introduced a carbon tax on uncommon, although a few countries do
certain fuels in 2007. In 2008, British provide benefits.
Columbia followed with a tax that applies
to the purchase or use of fuels within Australia’s Carbon Farming Initiative
the province. The US state of California (CFI) allows farmers and land managers
recently enacted a carbon tax at an to earn carbon credits by storing carbon
initial rate of USD10 per ton of carbon or reducing GHG emissions on the
content on coal, petroleum and natural land. These credits can then be sold to
gas. The tax will increase by USD10 each people and businesses wishing to offset
year, freezing when a mandated report their emissions. The CFI also helps the
by the Internal Revenue Service and environment by encouraging sustainable
the Department of Energy determines farming and providing a source of funding
that CO2 emissions have decreased by for landscape restoration projects. The
80 percent from 1990 levels. CFI is a carbon offset scheme that is part
of Australia’s carbon market. Legislation
to underpin the CFI was passed by
Cap-and-trade
Parliament in August 2011.
The US allows a tax credit for CO2

systems sequestration of USD10.44 per metric
ton (2012 rate) for CO2 used as a
Cap-and-trade systems are more widely tertiary injectant and then permanently
used by governments than carbon sequestered; USD20.88 (2012 rate) for
taxes. Of the 21 countries analyzed CO2 permanently sequestered without
for this Index, 12 (Australia, Belgium, first being used as tertiary injectant. This
Finland, France, Germany, India, incentive will close in the year in which
Ireland, South Korea, the Netherlands, the Internal Revenue Service determines
Singapore, Spain, and the UK) have that 75 million metric tons of CO2 have
a national system of some sort or been captured and sequestered.
Green
innovation
GREEN INNOVATION and applies these specifically to multiple
areas of green innovation.
South Korea 1
Canada 2 Canada
Brazil 3 The Scientific Research & Experimental
Development (SR&ED) Program is a
Argentina, Belgium, France, US 4
federal program providing cash refunds
and/or tax credits for investment in
eligible R&D undertaken in Canada.
Innovation is not only central to the and/or deductions, although some The program encourages Canadian
success of corporations, it is also countries offer indirect tax incentives businesses of all sizes to conduct R&D
crucial to governments’ green policy specific to R&D. in Canada. It is the largest single source
objectives. The fact that 18 of the 21 of Canadian federal government support
countries analyzed for the KPMG Green Notable countries that do not offer for industrial R&D and returns as much
Tax Index use their tax systems to R&D tax incentives include Finland and as a 35 percent federal cash refund.
encourage research and development Germany, which do however have R&D In addition, up to 10 provincial cash
(R&D) reflects the importance attached grant programs in place, and Russia. refunds are available in certain Canadian
to it. The KPMG Green Tax Index scores provinces. While the program is not
green-specific R&D incentives higher designed specifically for green innovation,
R&D drives down the cost of green projects are eligible.
technologies, improves the business than general incentives because they
are focused on green outcomes and
case for private sector investment,
non-green projects are not eligible.
Brazil
reduces cost to government and enables
solutions to be delivered at scale. However, it should be noted that general The Brazilian government has
R&D incentives, when applied to green established tax incentives applicable
While not all R&D tax incentives projects, can also be effective in driving to companies that incur expenditures
identified as part of this research sustainable corporate behavior and, as on R&D and technological innovation
are specific to green innovation, companies focus on driving innovation, projects. These tax incentives were
green projects are eligible for many increasing efficiency and cutting costs, established in 2005.
broad-based R&D incentives and in they are also likely to reduce the use of
some cases benefit from preferential fossil fuels and GHGs. The main tax incentives are:
treatment. • deduction of the total amount of
South Korea expenditure related to R&D for
In addition, R&D incentives specific
to the green agenda have become The Ministry of Strategy and Finance income tax purposes
increasingly common in recent years. provides a tax credit of 20 percent
(30 percent for small and medium-sized • additional deduction equal to
For example, South Korea’s R&D 60 percent of the total R&D
incentives were updated to focus on a companies) for R&D activities in four key
areas: electric, hybrid, plug-in or clean expenditures
green agenda as part of its 2009 Green
Growth Strategy. diesel vehicles; solar batteries; wind and • enhanced R&D extra deduction, based
geothermal energy; and carbon capture on the following criteria: if the entity
Analysis for the Index suggests that and storage. South Korea ranks first in increases the amount of researchers
most green R&D incentives in place the green innovation category because it by up to 5 percent in a given year, the
around the world are either tax credits offers tax credits rather than deductions
[In France] companies Belgium proportion of R&D related expenditure.
can access a tax credit The incentive, relevant across all
Belgium offers a tax deduction of up to industry sectors including IT-related
of 30 percent on 15.5 percent of investments in R&D fixed projects, aims to encourage and
eligible environmental assets if they have an environmental support investment in research and
research expenses up to benefit (14.5 percent for investments development.
EUR100 million (USD130 made in 2013).
Australia’s incentive has two dimensions:
million), and 5 percent
France a 45 percent refundable tax offset for
on eligible expenses eligible entities with a turnover of less
above EUR100 million. Companies can access a tax credit of
than AUD20 million (USD21 million) per
30 percent on eligible environmental
annum; and a non-refundable 40 percent
research expenses up to EUR100 million
additional deduction raises to tax offset for all other eligible entities.
(USD130 million), and 5 percent on
70 percent; and if it increases more Unused non-refundable offset amounts
eligible expenses above EUR100 million
than 5 percent in a given year, the may be able to be carried forward to
(USD130 million).
super deduction raises to 80 percent future income years.
of the qualified expenses US R&D tax credits also apply in Japan
• enhanced R&D extra deduction for Companies are entitled to both an R&D where the creditable amount depends
patents/trademarks: an additional deduction and an R&D credit if engaging on the size of the company, its total R&D
20 percent deduction is allowed in product and processes development expenditure for a fiscal year and the R&D
over the costs incurred in a patent/ and improvements. An R&D deduction is ratio (calculated by statute). In addition,
trademark development. available for research and experimental further tax credit is available until 2014.
costs incurred in the development or The maximum creditable amount is 40
In October 2012, the Brazilian improvement of a product. percent of the corporation tax liability
government established a program for the fiscal year (30 percent for the
called “INOVAR-AUTO” which An additional R&D tax credit of tax credit on total R&D expenditure and
aims to promote the technological approximately 6 percent of expenses 10 percent for the additional tax credit).
development, innovation, security, is also available in the US for taxpayers
environmental protection, energy that engage in certain activities South Africa offers 150 percent tax
efficiency and quality of vehicles and related to product development and deduction for eligible general R&D,
parts in Brazil. improvement, and manufacturing process including green and energy saving R&D.
improvements. In calculating the credit, A project may qualify, for example, if
Entities entitled to the “INOVAR-AUTO” costs incurred on wages, raw materials the innovation is related to changing a
program will be entitled to IPI (sales and contract research expenses are production process to a greener method.
tax) presumed credit calculated on included. The R&D expenditures that
expenditures made locally. India also offers a 100 percent deduction
are part of this credit are enhanced, thus
of the revenue expenditure and capital
increasing the credit amount, if a company
Argentina invests in an energy consortium.
expenditure incurred by a company on
scientific research related to its own
In December 2010, the Argentinian
business. Further, India also offers a
Ministry of Science Technology and
weighted deduction of 200 percent of
Other green
Innovation set up a program called
expense incurred on in-house R&D to
PROFIET (Program of Support to
a company engaged in the business of
the Entrepreneurial Investment in
Technology) to encourage entrepreneurial innovation bio-technology or in manufacturing or
production. However, these deductions
investment in technology. The program
focuses mainly on product innovation,
incentives do not include expenditure on land and
buildings.
process innovation, and innovation in
Australia’s R&D credit is also notable,
environmental management. It aims Singapore’s Productivity & Innovation
providing a targeted, accessible
to attract investors and venture capital Credit (PIC) provides 400 percent tax
entitlement program that assists
operators with tax credits (limited to deduction on the first SGD400,000
businesses to offset or recoup a
USD150,000).
(USD320,000) of qualifying R&D • Finland’s Tekes program offers, initiative by the Ministry of National
expenditure for each year of assessment, among other initiatives, funding Development (MND) that will cover
and 150 percent on expenditure in excess specific to natural resources and up to 75 percent of the cost of the
of SGD400,000 (USD320,000). From a sustainable economy. Current project, subject to a cap of SGD2
2013, businesses may opt to convert funding programs include BioRefine million (USD1.6 million). Under the
up to SGD100,000 (USD80,000) of the (new biomass products) 2007-2012, MND Research Fund, key focus areas
qualifying expenditure into a non-taxable Functional Materials 2007-2013, Water include sustainable development
cash payout at the rate of 60 percent. 2008-2012, Green Growth 2011-2015 projects such as integrating solar
and Green Mining 2011-2016. technologies into building facades.10
• Germany has numerous subsidies • Also in Singapore, the Environment
Non-tax incentives for R&D in the field of photovoltaics,
wind power, geothermal, solar
and Water Research Programme
(EWRP) funds institutes and
thermal power plants, low- companies to research and develop
Many governments offer a variety of
temperature solar thermal and new environmental and water
grant programs to support green R&D.
electromobility. The subsidies include technologies (EWT) that lead to
• Australia has a number of major capital subsidies and low interest significant and sustainable growth
programs and initiatives including the bearing loans. Around EUR4 billion opportunities. Funding of up to
AUD3.2 billion (USD3.3 billion) ARENA (USD5.2 billion) annually is reserved 70 percent is provided for companies.
initiative to promote innovation in for high-tech R&D projects in the • In the US, more than 20 government
renewable energy; AUD300 million form of nonrepayable project grants agencies offer grants related to
(USD311million) to help the steel (not specific to green projects). Grant the green space. These vary in
industry become efficient and rates can reach up to 50 percent of amount and there may be more than
economically sustainable in a low- eligible project costs and cooperation 1,000 grant programs in operation
carbon economy; and the AUD200 between project partners, especially at any one time. An example of a
million (USD208 million) Clean Tech between enterprises and research green-specific grant program is the
Innovation Program. institutions, is usually required. USD100 million fund offered by the
• Canada has a program to support • Singapore offers a wide variety of National Energy Technology Labs to
the development of eligible landfill grants through government agencies. recipients that can provide solutions
waste diversion projects with up to For example, the Research Fund for for addressing emissions from coal-
50 percent of total project cost. the Built Environment is a SGD50 powered electricity generation.
million (USD40 million) funding
10
http://www.greencollarasia.com/2012/08/18/2012-guide-to-singapore-government-funding-and-incentives-for-the-environment/. Accessed 21 March 2013.
Renewable energy &
fuels
RENEWABLE ENERGY & FUELS
US 1
Japan 2
Canada 3
India
4
Ireland
Renewable energy and fuels is one of for wind power. Installations were up varies, but is based on the number of
the policy areas where governments are 102 percent on the previous year kilowatt hours produced and sold to an
most active in putting tax incentives in and wind power ended the year unrelated taxpayer.
place and this includes the governments with a 6 percent share of overall US
of developing and emerging economies. generation capacity.12 An investment tax credit of 10 to
For example, Argentina, Mexico, China, 30 percent on the cost of renewable
India and South Africa all offer tax When it comes to tax penalties on energy equipment is also available in the
incentives in this area. conventional fossil fuels, the KPMG US which, like the production tax credit,
Green Tax Index demonstrates has varying expiry dates, depending on
Tax incentives for renewable energy and a clear difference in approaches the technology purchased, installed and
fuels identified as part of this research between developed and developing or used. At the time of writing, a credit is
include the full spectrum of available tools emerging economies. also available for companies expanding
including credits, capital allowances and their facilities to manufacture renewable
indirect incentives. Only the developed countries, among the energy equipment, and biofuel producers
sample analyzed for this Index, impose are also provided a credit based on the
The US leads the Index ranking for tax penalties on conventional fossil fuels; amount of fuel produced.
renewable energy and fuels due to the they include the US, Canada, Japan,
large number of tax incentives it offers Australia and the European countries. Users of certain fuels are also provided an
linked to this policy area. A good example Developing or emerging economies indirect tax credit, for example users of
of the effectiveness of tax incentives appear to avoid taxing conventional liquefied hydrogen are provided a credit of
is the US wind energy production tax fuel, presumably on the basis that such USD0.50 per gallon.
credit (PTC) which is widely credited with penalties could damage development and
playing a key role in the development growth prospects. In addition to the various tax credits
of the US wind energy industry by to incentivize renewable energy
improving the returns for investors and This section of the KPMG Green Tax production and use, the US also offers
enabling wind power to compete in Index reviews which governments are tax deductions. These include a capital
the market. most active in using their tax codes to allowance of 50 percent of the cost of
incentivize the production, or use of, cellulosic biofuel production equipment.
Between 1992, when the PTC was renewable and alternative fuels, and/or to This incentive is not permanently within
first implemented, and the end of 2011, penalize the use of fossil fuels. the tax code, and is scheduled to expire at
US wind power capacity grew 30-fold the end of 2013.
to account for 4 percent of the US’ US
‘total power generation capacity.11 The In terms of penalties, fuel excise taxes
The US tax code provides various are also imposed by the US federal
scheduled expiration of the PTC at the tax credits including a production tax
end of 2012 was linked to a surge in government. Currently, the federal tax on
credit on renewable energy. The rate gasoline is 18.4 US cents per gallon.
installation that made 2012 a record year
11
http://www.eia.gov/todayinenergy/detail.cfm?id=8870. Accessed 14 April 2013.
12
http://about.bnef.com/press-releases/burst-of-construction-in-december-delivers-record-year-for-us-wind/. Accessed 14 April 2013.
Japan Canada In addition, India provides a tax holiday
of 10 years within the first 15 years of
Japan penalizes the use of numerous Canada’s ecoEnergy for Biofuels operations for renewable energy facilities
fossil fuels with taxes including an oil initiative, which started in 2008, aims to that began to generate and transmit
and gas tax, a diesel oil delivery tax and invest 1.5 billion Canadian dollars (CAD) power before 31 March 2013. India
an aviation fuel tax. Furthermore, an (USD1.47 billion) over 9 years to boost has proposed to extend this benefit to
electric power-development promotion the country’s production of biofuels. The facilities which will begin to generate and
tax is levied on electric utilities at a rate incentive offers a tax credit for every transmit power before 31 March 2014.
of 375 Japanese yen (JPY) (USD4) per liter of biofuel produced and sold.
1,000kw/h of power sold. This measure Exemptions from indirect taxes include
was specifically enacted in the 1970s to Canada also provides various accelerated an outright exemption from excise
promote the generation of clean power tax deductions for renewable energy duty on the manufacture of specified
as an alternative energy to oil. The tax is generation. The accelerated rate of write- alternative energy devices, machinery
passed on by the utilities to end users off varies from 30 percent to 100 percent and systems related to renewable power
(both households and industry). per year depending on type of equipment generation, and on parts used in the
and/or component purchased. Certain manufacture of wind turbine blades.
Japan also applies petroleum and coal expenses can be carried forward
tax to the shipment of crude petroleum, indefinitely for use in future tax years, or Ireland
gaseous hydrocarbons or coal from flow to investors.
extracting stations or bonded areas. Ireland offers an accelerated capital
Canada imposes an excise tax of allowance (100 percent in the year of
Japan provides several significant CAD0.10 per liter on unleaded gasoline, expenditure) for purchases of solar, wind
incentives specific to renewable ethanol and unleaded aviation fuel with a and biomass equipment.
energy and fuel. These include a special lower rate applied to diesel and biodiesel.
depreciation of 30 percent or 100 percent
India
Other renewable
for the purchase and installation of
qualified renewable energy equipment. Many incentives specific to renewable
In addition, Japan also provides an energy are available to Indian taxpayers.
These tax incentives include accelerated
energy and fuel
incentive for fixed assets tax on certain
renewable energy generation facilities, depreciation of 80 percent of the cost
of a wide range of specified renewable
incentives and
qualified under the Act on Purchase of
Renewable Energy Sourced Electricity energy assets such as solar power penalties
by Electric Utilities, and acquired during generating systems, wind turbines and
the period from 29 May 2012 to 31 March biogas plant. Like many other countries, the UK
2014 (tax base reduction by one third). imposes a duty on certain fuels. The
UK imposes a heavy duty on fuel at
GBP0.5795 per liter of unleaded gasoline Investment Readiness Program and the ‘special category’ Indian states, subsidies
or diesel (USD3.40 per gallon) compared Renewable Energy Venture Capital Fund. for up to 60 percent of project costs are
with a duty of only 18.4 US cents per available.
gallon in the US. The fuel duty was frozen Australia’s Clean Energy Finance
by the government in 2013 until at least Corporation is an AUD10 billion (USD10.5 In addition, soft loans may also be
September 2014. Together with VAT, billion) commercially-oriented loan available for up to 80 percent of project
the total tax take on gasoline and diesel organization established by the national costs at a rate of 5 percent.
in the UK is around 60 percent of the government. Its objective is to overcome
capital market barriers that hinder Various grant programs are available
pump price. in Singapore to encourage the use of
the financing, commercialization and
China has an accelerated depreciation deployment of renewable energy as well renewable energy technology. Examples
policy for domestic enterprises that as energy efficiency and low-emissions include the Solar Capability Scheme
purchase listed renewable energy technology. which provides grants of up to 30
equipment. It also provides 3 years percent for solar technology, capped at
corporate income tax exemption and 3 In Canada, the Canadian Sustainable SGD1million (USD800,000) per project.
years 50 percent reduction for income Development Tech Canada Fund has The scheme’s objective is to encourage
derived from certain renewable power CAD1.1 billion (USD1.1 billion ) in the integration of solar technologies into
projects, as well as tax credits for the government funding, and manages energy efficient buildings and build the
purchase of renewable power generation various programs, including the Next capabilities of companies engaged in
equipment. Generation Biofuels Fund of CAD500 engineering, architecture and system
million (USD490 million). This fund integration.
Argentina also provides tax deduction supports up to 40 percent of eligible
and indirect incentives specific to biofuel costs for first-of-kind large scale
demonstration facilities for next-
Feed-in tariffs
and renewable energy production.
generation renewable fuels. The
South Korea provides a tax credit for the contribution will be repayable at a rate
purchase and installation of renewable based on the company’s free cash flow Of the 21 countries analyzed for this
energy equipment. A 10 percent credit of over a period of 10 years after project Index, over half (12) have a national feed-
the investment amount for geothermal, completion. in tariff program to support the generation
solar, fuel cell, wind energy, biomass, of renewable energy, namely a fixed
municipal solid waste and hydropower Various government agencies in price paid for renewable energy over the
equipment applies to investments made Finland provide grants and loans to fixed term. The total number of countries
before 31 December 2013. support renewable energy. They include with feed-in tariffs globally is over 50. The
Energy Aid which provides subsidies recent trend has been for feed-in tariff
to businesses, municipalities and rates to drop as costs of solar equipment,
corporations for investment in renewable
Non-tax incentives energy as well as energy efficiency and
especially photovoltaic modules, fall and
some cash-strapped governments look
diversification of the energy supply. to cut spending.
In Australia, the Australian Renewable Energy Aid provides up to 25 percent of
Energy Agency (ARENA) administers project costs. Finland’s Tekes program The KPMG Green Tax Index does not
AUD3.2 billion (USD3.34 billion) of also provides many different grants to cover feed-in tariffs in detail because
funding with the aim of improving the encourage the development and growth it focuses on tax-based penalties and
competitiveness of renewable energy of renewable energy. incentives. Further information on
technologies and increasing the supply feed-in tariffs and other incentives
of renewable energy in Australia. ARENA India provides capital subsidies for solar specific to renewables can be found
oversees previously allocated funding thermal technology of up to INR6,000 in a sister publication from KPMG
under a number of programs, with (USD111) per square meter of collector International: Taxes and Incentives for
current funding initiatives being Regional area, or 30 percent of project cost, Renewable Energy.13
Australia’s Renewables, Emerging whichever is less. For projects in rural
Renewables Program, Advanced Biofuels areas that lack electricity and in certain
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/taxes-incentives-renewable-energy-2012.pdf.
13
Green
buildings
GREEN BUILDINGS
US 1
Germany
2
Netherlands
Belgium
China 4
France
Buildings accounted for approximately It therefore comes as no surprise The buildings sector
one third of global energy-related CO2 that governments are increasingly offers the largest
emissions in 2004, according to the focusing policy on reducing the energy low-cost emissions
Intergovernmental Panel on Climate consumption of buildings, as well as
reduction opportunity
Change (IPCC).14 improving their water efficiency and the
sustainability of building materials. for governments
The buildings sector also offers the worldwide.
largest low-cost emissions reduction While non-tax approaches such as
opportunity for governments grants and subsidies remain, for the time
worldwide when compared with other being, the preferred tools to encourage
sectors, including energy generation, the construction and occupation of
transportation, industry and agriculture.15 green buildings, tax-related instruments
http://www.ipcc.ch/pdf/presentations/poznan-COP-14/diane-urge-vorsatz.pdf. Accessed 19 March 2013.

14
http://www.ipcc.ch/pdf/presentations/poznan-COP-14/diane-urge-vorsatz.pdf. Accessed 19 March 2013.

15
do exist. These offer potential
benefits for corporations and warrant
asset is permitted, with a maximum of
EUR10 million (USD13.1 million) applied Non-tax incentives
exploration. to investments in real estate.
Many governments are providing grants
In the analysis undertaken for this Belgium and subsidies to encourage more
Index, no tax penalties were identified efficient buildings.
specific to the energy consumption of Real estate in Belgium is subject to a tax
commercial buildings. Countries that known as the “immovable withholding China, for example, brought in
rank at the top of the Index in the green tax”. Owners of real estate pay the subsidies for both the construction of
buildings category do so due to the tax at a rate of 1.25-2.5 percent of its new energy efficient buildings and the
number of incentives they have in place. deemed rental value depending on the retrofitting of existing buildings in 2012.
location, although municipal surcharges Subsidies are calculated according
US can increase that to an effective rate to the square meter floor area of the
of 50 percent of rental value or more. building and can be as much as CNY80
The US tax code includes two federal (USD13) per square meter. Grants of
A reduction of this real estate tax is
tax incentives specific to efficient up to CNY50 million (USD8 million) are
provided if the building meets certain
buildings. Firstly, a tax credit is available available for the construction of green
green criteria based on the building’s
to the construction industry of buildings in designated green ecological
level of insulation.
USD1,000 for every home built that is city zones.
30 percent more energy efficient than China
standard, and USD2,000 for every home Germany, by contrast, offers low-
that is 50 percent more efficient. In China, a VAT exemption applies interest loan programs for energy
for enterprises that produce building efficient construction and retrofitting,
In addition, within the US, companies materials that contain at least and these are widely available to
may claim a tax deduction (under 30 percent recycled industrial waste corporations and institutions as well as
Section 1797D) for the cost of such as coal refuse or fly ash. private individuals.
equipment installed in commercial
buildings that significantly reduces France Singapore has a variety of non-tax
heating, cooling or lighting costs. The incentives in place. These include the
France provides an exemption for
deduction is equal to the cost of such Green Mark Incentive Scheme for
up to 5 years from local property tax
energy efficient commercial building Existing Buildings which provides cash
(either 50 percent or 100 percent) for
property placed in service during incentives to encourage energy efficient
buildings which qualify as low energy
the taxable year. The amount of the retrofits. In July 2012, the scheme was
consumption. Application of this
deduction cannot exceed USD1.80 per enhanced to provide up to 50 percent
exemption is subject to a prior adoption
square foot. of retrofit costs, capped at SGD3 million
by the local municipality.
(USD2.5 million). A similar Green Mark
Germany scheme provides funding for developers
Germany provides deductions and to engage environmental design
accelerated depreciation in relation to Other green building consultants in the planning phase for
new buildings.
tax incentives
leased and owned buildings that meet
certain requirements. The deductible/ Singapore’s Building & Construction
depreciable amount varies depending Authority (BCA) has also set up a SGD15
on whether the building is leased or The UK, although it does not have
million (USD12 million) Sustainable
owned, the length of lease or ownership a specific tax provision for green
Construction Capability Development
and the location of the property. buildings, does offer enhanced
Fund to boost Singapore’s resource
capital allowances on equipment that
efficiency through waste minimization
Netherlands improves the energy performance of
and recycling. The fund provides up
buildings. The allowance provides a 100
Investments in green buildings may to 50 percent of qualifying costs to
percent deduction for approved energy
qualify for accelerated depreciation companies to develop capabilities in
efficient equipment including heating,
under the Dutch VAMIL program, which the recycling of waste from demolition
lighting and ventilation systems. For
aims to encourage corporate investment and in the use of recycled materials
loss-making companies, a 19 percent
in environmentally friendly assets. for construction.
tax cash credit is available up to
Accelerated depreciation of up to
GBP250,000 (USD380,000).
75 percent of the cost of the qualifying
Green
vehicles
GREEN VEHICLES
Japan 1
France, UK 2
US 4
Belgium, Ireland, China, Spain 5
This section of the Index analyzes which rather than vehicles are included in the Of the 21 countries
governments are most active in using renewable energy & fuels section. analyzed for this Index,
their tax systems to promote greener,
fuel-efficient, electric or hybrid vehicles Of the 21 countries analyzed for this all except two have some
and reduce fossil-fuel consumption in Index, all except two (Argentina and sort of tax incentive and/
transport. Russia) have some sort of tax incentive or penalty related to
and/or penalty related to green vehicles. green vehicles.
This category includes tax penalties
associated with vehicle use and Several of the countries identified here
purchase, as well as tax incentives as the most active in green vehicle
related to the production, purchase or tax policy (Japan, France, the US and
lease of green vehicles. Note that tax China) are also among the world’s top
penalties and incentives related to fuels 10 net oil importers according to the
International Energy Agency (IEA).16
16
IEA. 2012 Key World Energy Statistics.
It could therefore be argued, that these three to five-fold increase in emissions France
countries in particular could benefit from from transportation in Asian countries
reducing oil consumption by transport. by 2030.17 France penalizes the use of vehicles
heavily. In fact, the country imposes
It should be noted that many Japan four types of penalties. The tax penalties
governments are also using non-tax include a surcharge on the acquisition
approaches, such as direct subsidies Vehicle-related tax penalties in of a polluting vehicle, applicable to
to green vehicle industries. These have Japan are numerous and include oil, passenger cars registered for the first
not been factored into the scoring petroleum and gas taxes, and taxes time in France. The amount of the
of the Index but some examples are related to vehicle size, types and use. surcharge varies depending on the CO2
provided. Owners of automobiles pay an annual emission rate (g/km) of the vehicle and
tax based on engine size. For private rates are reduced by 40 percent for
The background to burgeoning green passenger vehicles with engine vehicles that use super-ethanol E85
vehicle tax policy is a rapid growth displacement of between 1500 and (except for vehicles producing more
in demand for road transport. In its 2000 cubic centimeters (cc), the tax than 250 g/km CO2). As from 2013,
2012 World Energy Outlook, the rate is JPY39,500 (USD420) per year. the amount of the surcharge has been
IEA predicted that the number of There is also an additional tax on the significantly increased compared with
passenger cars will double between purchase of a private vehicle payable the previous year.
2011 and 2035 to 1.7 billion, and at the time of new registration or
demand for road freight will also transfer registration. A reduction in In common with Belgium, the UK and
increase rapidly. Much of the increase this tax rate is available for certain fuel some others, France also taxes company
will be driven by demand from efficient vehicles, but the current (at cars , though certain hybrids are exempt.
developing countries and the growth of the time of writing) rate for private Any passenger car used by a business
the ‘global middle class’. cars (before the reduction) is 5 percent in France is subject to the tax, no matter
of the vehicle’s value at the time of which country the company is registered
Transport already accounts for well acquisition. in. The rates of the tax vary according
over half (62 percent) of world oil to the CO2 emission rates (g/km) of the
consumption, up from only 45 percent An additional motor vehicle tonnage vehicle. In addition, capital allowance
in 1972, and the IEA predicts this share tax is payable at the time of inspection rates for polluting tourism vehicles
will increase. or registration. Tax rates vary are limited to EUR9,900 (USD12,860)
according to the type of vehicle, versus EUR18,300 (USD 23,770) for
These trends present governments, weight of vehicle and the intended
especially those that are net importers other vehicles. Trucks are also taxed,
use of the vehicle. For example, a tax depending on maximum loaded weight
of oil, with a challenge: how to continue rate for private passenger vehicles
to satisfy demand for transportation in excesses of 3.5 tons.
weighing not more than a ton is
a world where fossil fuel markets are
increasingly volatile and unpredictable,
JPY8,200 (USD87) per year. Additional UK
motor vehicle tonnage tax allowances
prices of oil are rising almost are provided if vehicles satisfy certain The UK also has an annual car tax
continuously, and security of supply is requirements. calculated on CO2 emissions and fuel
an increasing concern. type. The most polluting vehicles,
Tax incentives specific to vehicles emitting over 255g CO2/km, are taxed
Furthermore, many governments include a capital allowance for certain at GBP475 (USD 723) per year whereas
also face challenges from severe city refueling equipment. Alternative vehicles emitting 100g or less of
pollution due to fossil fuelled vehicles, refueling equipment is included in CO2/km are exempt.18
and the impacts of climate change, Japan’s capital allowance of
to which transportation is a major 30 percent of the cost of new Company cars in the UK are taxed, again
contributor. advanced low-carbon and energy with rates determined by the type of
saving equipment, provided that the vehicle, fuel type and CO2 emissions.
According to the Asian Development The UK also provides a 100 percent
Bank, transportation accounts for asset is purchased or produced in the
period from 1 June 2011 to 31 March first year capital allowance for vehicles
23 percent of energy-related CO2 meeting low-emission requirements
emissions and many experts predict a 2016 and put in use by business in
Japan within a year. (less than 110gm CO2/km).
Asian Development Bank. July 2010. Reducing Carbon Emissions from Transport Projects.
17
https://www.gov.uk/vehicle-tax-rate-tables. Accessed 23 March 2013.

18
London charges a congestion charge
fee of GBP10 (USD15) per day from
credit for the purchase of fuel efficient
vehicles such as electric vehicles. The Non-tax incentives
which low-emission vehicles are credit is not permanent and various
exempt. provisions are set to expire by 2014. In Many countries offer a variety of non-
addition, the US (like Japan) provides tax incentives aimed at promoting the
US a tax credit, which is set to expire at uptake of greener, low-emission and
the end of 2013, for alternative vehicle alternative fuel vehicles.
In common with many countries analyzed
in this Index, the US taxes large vehicles refueling equipment. The credit amount Australia, for example, has an LPG
(‘gas guzzlers’). The US government is calculated as 30 percent of the cost Vehicle Scheme which is aimed
established its Gas Guzzler Tax as part of the equipment, but is limited to no to increase the use of LPG as a
of the Energy Tax Act of 1978 in order to more than USD30,000 per taxpayer. transport fuel. Grants are provided for
discourage the production and purchase conversion of registered vehicles to LPG
of fuel-inefficient vehicles. The Gas
Belgium (AUD1,000) (USD915) or the purchase
Guzzler Tax is assessed on new cars Belgium penalizes companies for of new LPG vehicles (AUD2,000)
that do not meet required fuel economy providing environmentally unfriendly (USD1830). Grants are capped to
levels, currently 22.5 miles per gallon. vehicles to employees. The penalty rate 25,000 eligible claims per financial year.
These taxes apply only to passenger is linked to the vehicle’s CO2 emissions. This program started in July 2011.
cars. Trucks, minivans and sport utility
vehicles (SUV) are not covered because Ireland Canada’s Freight Technology Incentives
these vehicle types were not widely Program provides cost shared
Accelerated capital allowances of funding to support the purchase and
available in 1978 and were rarely used 100 percent in the year of expenditure
for non-commercial purposes. The US’ installation of proven technologies
are available in Ireland for equipment that can reduce the emissions of air
Internal Revenue Service is responsible purchased to manufacture certain
for administering the Gas Guzzler pollutants and GHGs. Examples include:
energy efficient vehicles, such as hybrid switching locomotives, diesel
program and collecting the taxes from car electric, plug-in, lean burn and hybrids.
manufacturers or importers. The amount anti-idling equipment and electronic
In addition, Ireland provides lowered speed control systems. The program
of tax is posted on the window stickers of vehicle registration taxes for more fuel
new cars — the lower the fuel economy, requires a minimum funding request of
efficient/low-emission vehicles. CAD25,000 (USD24,439) – a maximum
the higher the tax.
of 50 percent of project total eligible
The Gas Guzzler Tax for each vehicle
Spain costs, or CAD500,000 (USD489,000)
is based on its combined city and The Spanish government, in common over a 2-year period.
highway fuel economy value. Fuel with many other countries, offers
economy values are calculated before preferential registration tax rates on China’s 12th Five-Year Plan, announced
sales begin for the model year. The total lower emission vehicles. Preferential in March 2011, identified clean energy
amount of the tax is determined later rates for greener vehicles can also cars as one of three key investment
and is based on the total number of apply to the Mechanical Traction Tax, areas.19 In March 2013, it was reported
‘gas guzzler’ vehicles sold that year. It Spain’s second vehicle tax for which that China would impose strict new
is assessed after production has ended rates are set by local governments. fuel efficiency standards on new
for the model year and is paid by the cars. The rules will cut average fuel
vehicle manufacturer or importer. China consumption to 6.9 liters per 100km
(34 miles per gallon) by 2015 and to 5
Incentives enacted in the US include a In January 2012, China enacted a policy liters per 100km (47 miles per gallon)
tax credit for qualified fuel cell vehicles, on purchase tax reduction or exemption by 2020.20
varying in amount from USD4,000 to for greener vehicles. Under the policy,
USD40,000, depending on vehicle purchase tax is reduced by 50 percent China has implemented a pilot program
weight and date of purchase. An for eligible fuel-saving vehicles and of subsidies in five cities, including
additional USD1,000 to USD4,000 exempted for eligible alternative Shanghai and Shenzhen, where
fuel vehicles. subsidies are paid to manufacturers in
19
http://www.kpmg.com/cn/en/IssuesAndInsights/ArticlesPublications/Documents/China-12th-Five-Year-Plan-Energy-201104.pdf. Accessed 23 March 2013.
20
http://uk.reuters.com/article/2013/03/21/us-china-auto-fuel-idUKBRE92K03E20130321. Accessed 24 March 2013.
Since January 2011, order to reduce the price for purchasers. for the acquisition of new electric cars
the UK offers a plug-in Despite ‘lackluster’ sales due to high for up to 25 percent of the purchase
production costs, China has announced price, before tax, to a maximum of
car grant. The program
it will retain and fine tune the subsidy EUR6,000 per vehicle (USD8,600), and
provides a 25 percent system.21 25 percent of the gross purchase price of
grant towards the cost other electric vehicles such as buses and
of new plug-in cars. In Japan the government provides vans, with a maximum of EUR15,000
subsidies ranging from JPY70K (USD19,300) or EUR30,000 (USD38,60 0)
(USD740) to JPY900K (USD9,500) depending on the range and type of
to purchasers of new eco-friendly vehicles.
vehicles satisfying certain fuel efficiency
standards, provided that the vehicles Since January 2011, the UK offers a
are purchased in the period from plug-in car grant. The program provides
20 December 2011 to 31 January 2013 a 25 percent grant towards the cost of
and used for more than a year by the new plug-in cars, capped at GBP5,000
same individual. Japan allocated a budget (USD7,615). Vehicles must meet certain
of JPY300 billion (USD3.2 billion) for criteria, including emissions levels,
these subsidies. range, minimum top speed, warranty,
battery performance, safety. The list of
In Spain the government approved a eligible vehicles is continually updated,
EUR72 million (USD103 million) fund to and certain vans were recently included.
promote electric vehicles in May 2011.
The incentives include direct subsidies
http://www.china.org.cn/business/2013-03/18/content_28274515.htm. Accessed 24 March 2013.

21
Water
efficiency
WATER EFFICIENCY
South Korea 1
China 2
South Africa
3
UK
Belgium
5
Russia
There are plenty of dire predictions depreciation for expenditure on China

about water. water-saving, recycling or treatment
equipment. Russia is unusual in that China, since 2008, has offered
Supplies will fall 40 percent short it has a water tax as part of its federal businesses 3 years corporate income
of what the world needs within the tax code. tax exemption and a 50 percent
next 20 years, says the 2030 Water reduction for a further 3 years on income
Resources Group.22 We will run out Although water incentives and derived from water conservation. In
of water long before we run out of oil, penalties have not traditionally been addition, 10 percent of the amount
according to the Chairman of Nestlé.23 widely regulated through governments’ invested in specialized equipment used
And Hilary Clinton believes the risk tax legislation, KPMG expects that in water conservation may be credited
of future conflicts over water “raises increasing levels of water scarcity will against tax payable by the enterprise for
serious security concerns.”24 prompt more governments to use their the current year.
tax codes to modify behavior in the
Yet business approaches to water future. South Africa
scarcity are often tactical and short
South Africa allows businesses to
term, and not always built around a South Korea deduct 100 percent of their investments
longer-term strategic vision.
South Korea offers various incentives in water treatment or recycling assets
In a recent study, KPMG found that related to water scarcity and over a period of 4 years.
most of the world’s top 250 companies conservation including a tax credit for
(80 percent) mention water scarcity in 10 percent of expenditure on water UK
their corporate responsibility reports, conservation, treatment or recycling The UK offers enhanced capital
but only half report that they have a equipment. This applies to investments depreciation of 100 percent of qualifying
strategy to deal with it.25 made until 31 December 2013. water efficient equipment in 1 year.
In an attempt to address water scarcity An additional tax credit of up to 6
issues, governments – especially of percent is available if the company
Belgium
emerging economies – are increasingly acquires new equipment specifically Real estate in Belgium is subject to a
turning to their tax toolkits to to carry on a business to treat waste tax based on its rental value depending
encourage corporations to conserve water or waste material (including on the location. With municipal
and recycle limited water supplies. recycling) and maintains or increases surcharges, the effective tax rate can
the number of employees compared to be 50 percent of rental value or more.
The most common approaches are the previous year. This provision stops Water treatment sites are exempted
tax credits, deductions or accelerated on 31 December 2014. from this tax.
22
Water Resources Group, 2009. Charting Our Water Future.
23
http://www.nestle.com/csv/Nestle/messagechairman/Pages/messageChairman.aspx. Accessed 6 June 2012.
24
http://www.bloomberg.com/news/2012-03-21/u-s-intelligence-says-water-shortages-threaten-stability.html. Accessed 18 June 2012.
25
KPMG International. October 2012. Water Scarcity: A dive into global reporting trends.
Russia a water regulatory body, the National ground up can reduce the capital cost
Bureau of Water Use Efficiency. Tax of the system and generate long-term
Few governments impose a state or incentives may be introduced thereafter. savings in resource use.
federal water tax, although most charge
levies or fees via regional water authorities Singapore also offers the Innovation for
and/or environmental agencies. Environment Sustainability (IES) Fund,
One of the exceptions is Russia, where

Non-tax incentives managed by its National Environment
Agency. This fund helps companies to
there is a federal water tax as part implement environmental protection
Many countries are encouraging more
of the Russian Federation tax code, and public health related projects.
efficient use of water and addressing
although tax rates are differentiated The proposed projects must be at the
water scarcity issues using non-tax
according to what the water is applied research and test-bedding
instruments and incentives such as
used for and which river basin it is stage of technology development
grants and subsidies. This Index focuses
extracted from. and help Singapore meet its goal of
on tax-related instruments and so grants
have not been factored into the scoring, environmental sustainability. Water
however the following are examples of efficiency projects are eligible for these
Other water-related notable initiatives. grants, which cover a portion of project
costs, up to a maximum of SGD2 million
tax incentives Australia uses direct grant funding to
influence behavior in the water sector,
(USD1.6 million) for a duration of 3 years.
as it does in other environmental areas.

Singapore is also noteworthy in that
For example, the Australian government
it prices its water to reflect its scarcity
value and, in 1991, introduced a Water
is providing AUD450 million (USD470 Sub-national
incentives
million) for the On-Farm Irrigation
Conservation Tax designed to encourage
Efficiency Program and has committed
efficient use of water. For non-industrial
AUD3.1 billion (USD3.23 billion) to the
businesses, the rate of this tax is 30 Innovative water-related tax and
“Restoring the Balance”in the Murray-
percent but industrial usage is exempt.26 non-tax benefits are often available
Darling Basin program to purchase
Australia is in the process of water for the environment. Many of to businesses at sub-national and
implementing legislation that will Australia’s programs focus on specific municipal levels.
exempt grants provided under the regions of the country, especially those
For example, Canada’s city of Toronto
Sustainable Rural Water Use and that rely heavily on catchment areas,
has a Capacity Buy Back Program
Infrastructure Program from both such as the Murray-Darling Basin.
offering cash rebates to commercial
income tax and capital gains tax. Waste organizations that implement
Singapore’s government has various
water is also a covered sector under permanent process or equipment
significant grant programs currently in
Australia’s carbon price mechanism and, changes that save water. The one-
existence. For example, one initiative
as such, there is a financial incentive to time cash rebates are up to CAD0.30
provides 80 percent of qualifying
minimize carbon emissions from waste (USD0.30) per liter of water saved per
costs or SGD600,000 (USD480,000),
water through recycling and treatment. average day.
whichever is lower, to integrate water
India does not yet have tax incentives efficiency improvements into the
The US’ Southern California WaterSmart
in place for the installation or use of early design stages of manufacturing
Commercial Programs also offers rebates
water efficient equipment, but the Indian facilities. The reasoning is that designing
for water efficient fixtures and equipment.
government is soon expected to introduce facilities to be water efficient from the
http://www.pub.gov.sg/general/Pages/WaterTariff.aspx. Accessed 21 March 2013.

26
Material resource efficiency
& waste management
MATERIAL RESOURCE EFFICIENCY/

WASTE MANAGEMENT
France 1
China 2
Belgium
South Korea 3
UK
Taxes on waste to landfill have been That said, however, tax approaches
common in Europe since the 1990s. related to material resource conservation
Over the last two decades, governments and waste reduction tend to be penalty-
around the world, both national and led. France, for example, leads the ranking
local, have become more innovative in in this category on the basis of several
using their tax codes and other fiscal different penalties imposed on waste.
instruments to conserve material China is unusual in that it imposes taxes
resources, reduce waste (including on mineral resources.
packaging) and encourage the reuse and
recycling of waste materials.
Around one quarter (5) of the countries The Chinese government’s levy on tin that provide waste treatment or recycling
analyzed for this Index offer incentives ore rose 20-fold to between CNY12 services. The tax reduction is calculated
for efficient use of materials or waste and CNY20 (USD1.95 to USD3.25) per as a percentage between 5 percent
recycling as part of their national tax code. ton depending on the grade. The tax on and 30 percent of the taxable income
They are South Korea, China, Brazil, South iron ore also rose from 60 percent of of the company pending on the type of
Africa and the US. Notably, European the iron ore base rate to 80 percent,27 service provided. This provision stops on
countries appear to focus on penalties while similar increases were imposed 31 December 2014.
rather than incentives in this area. on molybdenum, magnesium, talc
and boron. In addition, a business that purchases
France waste materials or used cars from
Various tax incentives are also available a VAT-exempt entity (such as the
France has the most penalties and no in China. For example, revenue derived government) and re-uses them in further
incentives in this space, and therefore from the manufacture of products that manufacturing processes is entitled to
scores most highly among the material are in line with state industrial policy and recover a deemed input VAT.
resource Index scores (for the purposes involve “synergistic use of resources”
of this Index, penalty scores are weighted may be reduced to 90 percent of actual UK
by a factor of 2 to reflect the fact that in calculating the taxable income
compliance is obligatory). The UK imposes an aggregates levy,
of enterprise. introduced on 1 April 2002, which is a UK-
France imposes a tax on the removal of In 2011, China reduced or eliminated wide tax on the commercial exploitation
refuse from buildings liable to property VAT on goods produced from recycled of virgin aggregates, namely rock, sand
tax (except factories), a tax on the materials in order to promote the circular and gravel. The levy aims to encourage
recovery and elimination of paper waste, economy. VAT refunds range between 50 efficient use of virgin aggregate materials
and a tax on the recovery and elimination and 100 percent. Qualifying goods include and increased use of untaxed alternative
of electronic waste. sand produced from construction waste, construction materials such as recycled
powdered rubber made from obsolete construction and demolition waste.
The tax on paper waste is paid by every
organization that produces or imports tires and electricity or heat produced from The UK also imposes a per-ton landfill tax
more than five tons of printed paper. In organic waste.28 on waste going to landfill.
2013, the tax rate was EUR48 (USD62)
per ton produced in 2012. In addition,
Belgium
every business that produces, imports
or introduces electric and electronic
Belgium both penalizes and incentivizes
behavior related to material resources
Other material
equipment on the national market must
contribute to the collection and the
and waste. Firstly, Belgium applies tax
penalties to a wide range of material
resource and waste
elimination of waste equipment. goods including beverage packaging, penalties and
incentives
disposable cameras (unless 80 percent
China can be recycled), batteries and disposable
Tax penalties enforced by revenue cutlery. In addition, the country offers a 3
percent tax deduction for companies that Other notable tax instruments applicable
agencies on minerals are uncommon
acquire new tangible or intangible fixed to material resource conservation and
among the countries analyzed for this
assets that contribute to the recycling of waste reduction include South Africa’s
Index, although one of the most striking
packaging. Section 37B of the Income Tax Act.
examples is the announcement by China
This provides an allowance for costs
in 2012 of increases in resource taxes
on six minerals, including iron and tin
South Korea incurred in acquiring new environmental
treatment, recycling, or waste
ore. Reports attributed the increases to A number of tax incentives are available
disposal assets.
China’s policy objective of conserving in South Korea related to materials,
domestic mineral resources and the packaging and waste. For example, a tax
environment. credit is available for mid-size companies
http://www.bloomberg.com/news/2012-02-17/china-raises-resources-tax-on-iron-tin-molybdenum-production.html. Accessed 21 March.

27
http://www.china-briefing.com/news/2011/11/28/china-expands-tax-incentives-to-promote-circular-economy.html. Accessed 21 March.

28
For waste treatment and recycling assets,
a capital allowance of 40 percent of the Non-tax incentives In the US, corporations
can benefit from
cost is available in year one and a further
Various non-tax incentives and grants accelerated depreciation
20 percent per annum for the subsequent
3 years. For waste disposal assets, the specific to material resources and waste of 50 percent of the
cost can be written off in a straight line are also available around the world. adjusted basis of assets
over 20 years at 5 percent per year. For example, Australia’s Australian
purchased for the reuse
Packaging Covenant is an agreement and recycling of waste
In the US, corporations can benefit from
accelerated depreciation of 50 percent of between companies in the supply materials.
the adjusted basis of assets purchased chain and all levels of the Australian
for the reuse and recycling of waste government to reduce the environmental
materials. impacts of consumer packaging by
encouraging improvements in packaging
The Netherlands abolished its Packaging design, higher recycling rates and better
Tax in 2013 in favor of a Packaging Waste stewardship of packaging. Grants are
Control Levy payable by companies that available to industry to focus on initiatives
introduce more than 50,000 kilos of related to glass, plastics and recycling
packaging onto the Dutch market. programs. Over AUD6.1 million (USD6.3
million) in funding has been provided to 40
In Brazil manufacturers benefit from a tax new projects in the 2012-2013 fiscal year.
credit on the acquisition of certain waste
materials if they are to be recycled into
new products. Eligible waste materials
include plastic, paper, glass and various Sub-national
metals. The tax credit is calculated
according to a defined percentage of the
initiatives
IPI (federal sales tax) rate.
Mexico City provides an example of
Landfill taxes are relatively common waste-reduction tax incentives offered by
across the globe, on a national and sub- municipalities. Since 3 years ago, the city
national level. As examples, Finland taxes has granted a tax credit to corporations
EUR50 (USD65) per ton, Japan taxes that recycle or reprocess their solid
per ton of industrial waste at a rate set waste. The credits are offered on a sliding
by local governments, and Mexico City scale from 20 percent of payroll tax to
taxes commercial waste per kilogram in those who recycle or reprocess from 33
excess of 50kg. percent to 44 percent of their waste, up to
a credit of 40 percent of the payroll tax to
those who recycle or reprocess between
60 and 100 percent of their solid waste.
Pollution control &
ecosystem protection
POLLUTION CONTROL & ECOSYSTEM PROTECTION
Singapore 1
Spain 2
France, Mexico
3
South Africa, UK, US
This section of the KPMG Green Singapore Nine of the 21 countries

Tax Index reviews how national analyzed are notable for
governments are using their tax Singapore has two significant tax
incentives that relate to ecosystem having some form of tax
systems to penalize polluting activities
or to incentivize the reduction conservation. In 2010, Singapore instruments in place related
of pollution or the protection of introduced the Land Intensification to pollution control and
ecosystems. Allowance (LIA) incentive, a scheme to ecosystem protection.
promote more efficient use of industrial
It is important to note that many land, encouraging brownfield rather than
countries have environmental agencies greenfield development. The LIA provides
that monitor the impact of industry on an initial tax allowance of 25 percent
the environment, issue licenses and and annual tax allowance of 5 percent
impose fines for contraventions. The on qualifying capital expenditure on the
Index does not consider such fines construction, renovation or extension of
for its purposes, but limits its review industrial buildings.
specifically to tax-based penalties and
incentives. Businesses in Singapore can also claim a
one-year accelerated capital allowance for
Nine of the 21 countries analyzed are approved pollution control equipment.
notable for having some form of tax
instruments in place related to pollution Spain
control and ecosystem protection. Over Spain offers a Corporate Income Tax
half of these countries are located in credit (Article 39) for investments in fixed
Europe. Most of the tax mechanisms assets whose purpose is to protect the
these governments have in place are environment. Qualifying assets include
incentives to encourage the purchase facilities to avoid air, noise or water
of equipment to reduce pollution or pollution from industrial installations.
incentives to encourage businesses to The tax credit amount is 8 percent of
rehabilitate contaminated land. qualifying investments.
However, France stands out for enacting
tax-based penalties on pollution.
France UK The tax credit is equal to 25 percent of
the fair market value of the property
France imposes a general tax on polluting In the UK, companies can claim Land donated and limited to USD500,000
activities (Taxe Générale sur les Activités Remediation Relief: a deduction of 100 for corporations.
Polluantes or TGAP) on a “pay as you percent, plus an additional deduction of
pollute” basis. The original tax, enacted 50 percent, for qualifying expenditure
in 1999, covered the disposal of waste, incurred by companies in rehabilitating
atmospheric industrial pollution and
air traffic noise. It was extended in
land acquired from a third party in a
contaminated state.
Non-tax incentives
2000 to cover washing products and Singapore’s IES Fund provides
insecticide products for agricultural use, US funding of SGD2 million (USD1.6
among others. As from 1 January 2014 US companies can choose to write off million) per project to qualifying
the tax will apply to single-use bags certain certified pollution control assets Singaporean companies that undertake
provided in stores. The tax is levied per over a period of time, between 60 and environmental protection and public
ton of polluting substance produced or 84 months depending on the type of health related projects that contribute
processed. facility. This allowance is one of the few to the long-term environmental
incentives in the US tax code with no sustainability of Singapore. Focus areas
Mexico expiration date, however facilities must for the fund include pollution control
Investments in equipment to be certified in order to take advantage of solutions for air, water, noise, hazardous
control or prevent environmental the incentive. substances and toxic industrial waste.
pollution can qualify for an immediate
100 percent deduction. In the US, there are also a large
number of sub-national state-based tax
South Africa incentives related to pollution control
and ecosystem protection. For example,
South Africa has a sector specific tax North Carolina’s Conservation Tax Credit
incentive for the mining sector. Mining Program is an incentive for private
companies are obligated to rehabilitate landowners, including corporations, to
land after the conclusion of mining voluntarily donate land for conservation.
activities and must set up a trust to fund
the rehabilitation. Contributions to these
trusts are fully tax deductible.
About
KPMG’s green tax services
KPMG’s global team of sustainability tax professionals help
companies – and especially multinationals – to identify,
KPMG’s green tax services
quantify and capture green tax credits and incentives include, but are not limited to:
specific to their investments and activities.
Identifying Tax Incentives and Grants: Advising on
These incentives can be worth tens of millions of dollars.
the availability of tax credits, deductions, grants and
Capturing them can help companies to increase the return
other incentives relevant to green investments including
on investments in sustainability projects and innovation,
renewable energy, green innovation, building improvements,
lower effective tax rates and improve cash flow.
and energy and resource efficiency.
KPMG member firms also assist their clients to manage and
Sustainability Studies: Advising on the after-tax effects of
reduce their exposure to green tax penalties, such as carbon
green tax incentives on corporate sustainability investments,
taxes, which can have a material impact on a company’s
for example on investments to improve the energy efficiency
bottom line.
of manufacturing processes.
KPMG in the US assisted a multinational consumer Tax Advice: Assisting clients to prepare tax opinions,
products company to plan its investment in a new R&D providing due diligence services, undertaking risk
facility. The team identified green tax opportunities worth assessments, reviewing financial models and providing
approximately US$30 million including energy credits, related general income tax advice.
R&D tax deductions and credits, fixed asset allowances
and other incentives. Transaction Structuring: Assisting clients to structure
transactions to help secure relevant green tax incentives, for
example through partnerships or sale-leasebacks.
KPMG in South Africa assisted a client to apply for a
tax allowance for a bio-diesel manufacturing plant. The Monitoring Legislation: Monitoring new green tax
project was approved by South Africa’s Department of legislation worldwide and educating clients on the latest
Trade & Industry as a Greenfield project with preferred incentive opportunities and penalty compliance obligations.
status. The net tax benefit to the client was ZAR252 Managing green tax penalties: Assisting clients with the
million (US$28.5 million). monitoring and reporting required to comply with green tax
penalties such as carbon taxes and price mechanisms and
KPMG in the US conducted a review of energy efficient helping them to reduce exposure to penalties, for example
data centers and production facilities for a large software by reducing energy use and carbon emissions.
company. Approximately US$40 million green tax
opportunities were identified including tax deductions for
energy-efficient buildings, and R&D deductions and credits.
Contact your local member firm professional
Global France Russia
Fran Leibsker Philippe Arnaud Oleg Ganeles
E: fleibsker@kpmg.com E: parnaud@kpmg.ft E: oganeles@kpmg.ru
Germany Igor Korotetskiy

Australia
E: ikorotetskiy@kpmg.ru
David Gelb Eugen Straub
E: dgelb@kpmg.com.au E: estraub@kpmg.de Singapore
Adrian King Jochen Pampel Wu Hong Chiu
E: avking@kpmg.com.au E: jpampel@kpmg.com E: wchiu@kpmg.com.sg
Ireland Sharad Somani

Argentina
E: sharadsomani@kpmg.com.sg
Omar Diaz Michael Hayes
E: oddiaz@kpmg.com.ar E: michael.hayes@kpmg.ie Spain
Martin Mendivelzua Eoin O’Lideaha Juan Carlos Roig Dominguez
E: mmendivelzua@kpmg.com.ar E: eoin.olideaha@kpmg.ie E: jroig@kpmg.es
Japan Jose Luis Blasco Vazquez

Belgium
E: jblasco@kpmg.es
Thomas Zwaenepoel Miyuki Murata
E: thomas.zwaenepoel@kpmg.be E: miyuki.murata@jp.kpmg.com South Africa
Mike Boonen Kazuhiko Saito Alan Field
E: mboonen@kpmg.com E: kazuhiko.saito@jp.kpmg.com E: alan.field@kpmg.co.za
India Neil Morris

Brazil
E: neil.morris@kpmg.co.za
Murilo Mello Saurabh Upadhyay
E: murilomello@kpmg.com.br E: supadhyay@kpmg.com South Korea
Sidney Ito Hariharan Gangadharan Ok Su Lee
E: sito@kpmg.com.br E: hariharan@kpmg.com E: oksulee@kr.kpmg.com
Santhosh Jayaram Sungwoo Kim
Canada
E: santhoshj@kpmg.com E: sungwookim@kr.kpmg.com
Wayne Chodzicki
E: wchodzicki@kpmg.ca Mexico US
Bill Murphy Gabriel Andrade John Gimigliano
E: billmurphy@kpmg.ca E: gabrielandrade@kpmg.com.mx E: jgimigliano@kpmg.com
Jesus Gonzalez John Hickox
China
E: jesusgonzalez@kpmg.com.mx E: jhickox@kpmg.com
Jean Ngan Li (SZ/PTR)
E: jean.li@kpmg.com.cn Netherlands UK
Leah Jin Annemiek van Dijk Barbara Bell
E: leah.jin@kpmg.com E: vandijk.annemiek@kpmg.nl E: barbara.bell@kpmg.co.uk
Bernd Hendriksen Vincent Neate
Finland
E: hendriksen.bernd@kpmg.nl E: vincent.neate@kpmg.co.uk
Matti Alpua
E: matti.alpua@kpmg.fi
Tomas Otterström
E: tomas.otterstrom@kpmg.fi
kpmg.com/socialmedia
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Publication name: The KPMG Green Tax Index 2013
Publication number: 130215
Publication date: August 2013

The KPMG Green Tax Index 2013: An Exploration of Green Tax Incentives and Penalties

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The KPMG Green Tax Index 2013: An Exploration of Green Tax Incentives and Penalties

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The KPMG

Green Tax Index

As governments increasingly use tax as a tool to achieve green

KPMG International has analyzed 21 countries for this report

The KPMG Green Tax Index 2013 1

Companies that operate or plan to

Note: The data in this report was compiled as of 23 April 2013.

2 The KPMG Green Tax Index 2013

• Energy efficiency • Penalties or incentives designed for small businesses,

Tax/incentive type Points

The KPMG Green Tax Index 2013 3

4 The KPMG Green Tax Index 2013

The KPMG Green Tax Index 2013 5

6 The KPMG Green Tax Index 2013

South Korea 1 Belgium

Argentina, Belgium, France, US 4

POLLUTION CONTROL & ECOSYSTEM PROTECTION

The KPMG Green Tax Index 2013 7

Energy efficiency Purchase of energy efficient equipment: incentives

Carbon taxes (national) x

Carbon taxes (sub-national) x

Other carbon emission penalties

Carbon sequestration/capture & storage incentives x

General innovation/R&D incentives for which green technologies may be eligible x x x x x

Carbon capture and storage: innovation/R&D incentives

Energy efficiency: innovation/R&D incentives x

Water efficient technologies: innovation/R&D incentives

Waste/recycling: innovation/R&D incentives x

Green buildings: innovation/R&D incentives

Other green innovation/R&D incentives x

Production of renewable energy and fuels: incentives x x x

Taxes/penalties on conventional (fossil) fuels x x

Incentives to build/occupy green buildings

Vehicles: taxes/penalties on environmentally unfriendly vehicles x

Green vehicles Vehicles: incentives for production of green vehicles

Vehicles: incentives for the purchase/lease/use of green vehicles x x

Taxes/penalties on water use (national)

Incentives to produce or purchase water efficient equipment or water recycling equipment

Taxes/penalties on the use of material resources

Material resource efficiency & Taxes/penalties on consumption x

Taxes/penalties on commercial waste

Taxes/penalties on pollution: air, water, ground, etc.

Pollution control & Taxes/penalties on land use change

Incentives to invest in environmental protection/rehabilitation

Source: The KPMG Green Tax Index, 2013.

8 The KPMG Green Tax Index 2013

The KPMG Green Tax Index 2013 9

10 The KPMG Green Tax Index 2013

The KPMG Green Tax Index 2013 11

12 The KPMG Green Tax Index 2013

The KPMG Green Tax Index 2013 13

14 The KPMG Green Tax Index 2013

http://www.theaustralian.com.au/national-affairs/climate/emissions-drop-signals-fall-in-carbon-tax-take/story-e6frg6xf-1226559632995. Accessed 21 March 2013.

http://www.bloomberg.com/news/2013-03-06/china-backing-away-from-carbon-tax-start-in-2013-official-says.html. Accessed 25 March 2013.

The KPMG Green Tax Index 2013 15

The US allows a tax credit for CO2

16 The KPMG Green Tax Index 2013

The KPMG Green Tax Index 2013 17

18 The KPMG Green Tax Index 2013

The KPMG Green Tax Index 2013 19

20 The KPMG Green Tax Index 2013

The KPMG Green Tax Index 2013 21

22 The KPMG Green Tax Index 2013

http://www.theaustralian.com.au/national-affairs/climate/emissions-drop-signals-fall-in-carbon-tax-take/story-e6frg6xf-1226559632995. Accessed 21 March 2013.

http://www.bloomberg.com/news/2013-03-06/china-backing-away-from-carbon-tax-start-in-2013-official-says.html. Accessed 25 March 2013.