Why Government Incentives Help Foster Green Innovation, Curb Emissions

In a context where divergent incentives, such as subsidies for fossil fuels, lack of incentives to build energy-efficient buildings or curb pollution, are still the standard, a study shows that fiscal measures and regulatory measures could significantly reduce carbon emissions and help governments meet the objectives of the UNFCCC Paris Agreement.

The Paris Agreement, enacted November 4th, 2016, defines a global plan of action to mitigate the effects of climate change. Among the key points of the agreement, ratified by 132 parties, is to guide current policies towards the goal of carbon neutrality by the end of the century.

While governments should act quickly to allocate resources for reducing carbon emissions, the world economy remains dependent on fossil fuels. As a result, policies to break this dependency and reorient investment and technologies are needed urgently.

Fiscal Policies to Spark Green Innovation

Published in the journal Climate Policy, research by Camila Gramkow of the University of East Anglia and co-authored by Annela Anger-Kraavi of the University of Cambridge studied the green energy tax and incentives landscape, based on the Brazilian model.

By examining Brazil’s green policies, such as green taxes and innovation incentives, researchers have found that despite the increasing number of measures introduced in the country in recent years, the use of these incentives is still in an early stage. Of the more than 100,000 companies in 24 industries surveyed, less than 14% have adopted environment-friendlier technologies.

Researchers noted that, unlike in industrialized countries, such as Germany and the United Kingdom, green tax policies (GFPs) in Brazil and other nearly-developed countries are yet to have palpable effects. But the study did find that the introduction of green tax incentives even at the local level generates a significant impact on green innovation.

Other than green projects, the study also showed that tax incentives for general technological innovation could increase the adoption of green technologies. Ten out of 17 companies benefiting from new research and development adopted green technologies.

Renewables: The gap Widens Between China and the US

Long known as the world’s cheap manufactory, China now wants to be the world’s lab and turn the old stigma of “Made in China” to “Designed in China.”

Decades of frenzied industrialization have left their marks on the quality of China’s water, soil, and air. Yet, Beijing launched plans to promote the development of renewable energies, increase their share in the energy mix, through incentive policies to boost green innovation, tax cuts, and massive investments.

With $103 billion USD in 2015, China invested more than the United States and Japan combined and now ranks as the world leader in domestic investment in renewable energies.