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Climate Change To Bring ‘Substantial’ Tax Changes

/ 1st April 2021 /
Ed McKenna

Restraining climate change is going to result in substantial changes in taxation, according to KPMG.

The consultancy hosted a webinar attended by more than 100 C-suite executives that examined links between carbon behaviours and taxation, including the latest EU mechanism aimed at avoiding something called ‘carbon leakage’ and which comes into force next January.

Under the Carbon Border Adjustment Mechanism (CBAM), high carbon goods being imported from third countries into the EU will face an additional level of taxation in order to avoid what is known as ‘carbon leakage’ –  where cheaper high-carbon goods compete with more expensive low-carbon goods in the EU. 

The mechanism is likely to generate €14 billion in revenue in its first year, though its aim is to maintain competition rather than simply harvest taxes.

KPMG’s climate change leader Mike Hayes (pictured) said: “Awareness and acceptance of the scale of the climate challenge has never been higher, and there is a coming together of corporates, investors and individual citizens to say now is the time to tackle this crisis head on. COP26, which will be held in Glasgow in November this year, is the opportunity of the decade for real action to be taken.”

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CBAM Impact

If so, business leaders will need to beef up their awareness factor. Only a quarter of the executives attending the webinar even knew that CBAM existed.

KPMG said this mechanism, which will initially apply to products such as aluminium, steel, fertilisers, cement and heavy chemicals, will be extended to wider products and industries following an initial pilot. The company strongly advises businesses to start preparing for the changes, beginning with ensuring they have an accurate measure of their carbon footprint across their product range.

Among the attendance, there was consensus that tax policy should play some role in driving action on climate change, with none of the view that tax had no role. Almost half believe tax policy should play a significant role in driving action on climate change. 

Ahead of COP26, KPMG is advocating that serious consideration should be given to using tax policy as a tool to fight climate change. The preferred tax policy measures among attendees included the introduction of new tax incentives (37%), carbon taxes (34%) and more support for climate R&D incentives (29%).

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