Greening the tax system: using fiscal policy to help business reach net-zero

With business focus slowly shifting to issues other than COVID-19, the CBI is drawing the government’s attention to environmental taxation and how it could be used as an important policy lever to drive business progress towards net-zero.

The transition to net-zero will require businesses to incur significant new costs as they invest in new low-carbon technologies and services. In the current economic climate, it is crucial that business is provided with the right policy framework to support the delivery of net-zero. Our ‘Greening the tax system’ paper considers how the UK tax system could be used to accelerate the reduction of emissions and drive change by the private sector.

We set out some important guiding principles which the government should follow in shaping environmental tax policies for business over the coming decades. Business needs:

• more clarity on the taxation and regulatory models that the government intends to deploy
• more transparency around the policy objectives of the environmental taxes and increasing focus on green technologies.

There are some priority areas where tax policy could be effectively used to encourage action by business and consumers. To accelerate business progress towards net-zero over the course of this Parliament, we encourage the government to focus on the uptake of zero-emission vehicles, decarbonising buildings and fast-tracking innovation in industrial emissions reduction.

To harness tax as an effective policy lever in achieving net-zero, the paper also makes it clear that business needs certainty in the long-term direction of travel, in particular around transport and emissions taxation. All this should be set out in a long-term tax policy framework with the net-zero target at its core.