Although there is a strong consensus that tax policy is essential to reaching the 2050 climate neutrality target and the Danish 2030 greenhouse gas reduction targets, current rules and agreements are not delivering the necessary results. This is partly due to the fact that many countries around the world do not coordinate their tax policy instruments at an international level. This would otherwise increase efficiency, explains Jeroen Lammers, PhD student at the University of Amsterdam and Senior Lecturer in Tax Law at CBS.
‘If we raise taxes too much on certain activities in Denmark to limit CO2 emissions, those activities might just move to another country and we will achieve nothing. We need to reduce emissions while preserving jobs and welfare. That is the big challenge,’ he says, pointing to another thing that requires collective action:
‘If you really want to fight climate change, private companies need to invest a lot of money in new technologies. Now inflation is rising and the war in Ukraine is creating a lot of uncertainty. All this complicates how we can use tax policy in the green transition, because we cannot just let taxes go up and make it so expensive for companies that they can not invest, or so expensive for consumers that they can not pay their bills. That is why we need to figure out together how we can coordinate both nationally and internationally to achieve results.’
Tax can change behaviour
According to Peter Koerver Schmidt, professor mso of tax law at CBS, tax policy is well suited to promoting the green transition.
‘There is good experience that taxes influence people's behaviour. Instead of banning something, you can impose a tax on it. This can be a more effective solution than having to enforce a system that monitors whether everyone stays within certain emission limits. Instead, the tax system incentivises people to act in a certain way‘, he explains, referring to the media debate about Danish companies’ carbon tax.
‘In Denmark, we are trying to take action, and we have an agreement on a CO2 tax. But then we see examples of certain larger companies receiving discounts. And that’s the problem: we try to implement regulations, but then it becomes clear what those regulations will cost, and it can put some Danish companies at a competitive disadvantage because they incur higher costs than their foreign competitors. In this way, we harm our own industry, and possibly the pollution just moves to another country. So, not much is gained,‘ he says, mentioning another risk where companies pass the bill on to customers.
‘It simply risks hitting the poorest hardest,’ says Peter Koerver Schmidt.
According to both researchers, there is a need for specialists in the field to meet to talk about both challenges and solutions.
Read more about our Master of Tax programme here. The programme is taught in Danish.
