Business consequences of tax driving net zero ambitions

Governments will likely also use other instruments, including incentives, regulations and targets - and different countries may rely to very differing degrees on each of these levers.
 

The Russian invasion of Ukraine and the current energy crisis may initially slightly slow decarbonization and alter the pathway to net zero but is creating an even greater sense of urgency and, in the medium to long term, is likely to accelerate progress.

A significant increase in a country’s carbon price will likely drive concerns about carbon leakage and increase calls for carbon border adjustment mechanisms (CBAMs)
 

CBAMs raise many issues of complexity, WTO compliance and trade distortion. Hence the suggestion by some for a “carbon club,” which could take account of the differing policy options and pathways chosen by individual countries.

The ability of tax costs to drive behavior is one reason why carbon pricing has been used as a key way to promote businesses transition to green energy alternatives. By putting an economic cost on the carbon emissions embedded in a product or service, businesses and consumers are incentivized to shift from fossil fuels (where historically, the total cost of environmental externalities has not been borne) toward low-carbon alternatives. Curious to know more? Download the report today. 

The clean energy transition is critical, but some jurisdictions might also take measures to support the move to a circular economy more broadly. In these jurisdictions, businesses may have to develop, more circular business models based on repair, resale and retaining value; processes which can be knowledge-intensive, and take time, energy and innovative thinking to develop. Curious to know more? Download the report today.