Delivering a just transition

Four keys to tax policies that maximise business action

Our new report, ‘Delivering a Just Transition’, explores the role of tax policies in maximising business support for a just transition. Drawing on our extensive experience advising thousands of companies, the report provides practical insights into how business leaders worldwide are responding to these tax policies. The publication of this report coincides with the Irish Government’s announcement of the newly formed Just Transition Commission.

Tax policy plays a pivotal role in fostering a just and sustainable energy transition. Globally, governments are developing and enacting tax policies to encourage companies to support a just transition to a lower-carbon economy. The goal of this report is to guide policymakers in designing tax policies that maximise business support for a just transition by sharing some of the levers and barriers to business action.

Our report identifies four keys to creating effective tax policies and outlines the markers of success or failure for each.

1. Offers certainty: tax policy is more successful when it provides a clear method for companies to demonstrate compliance. A policy is less effective if it lacks clarity on how authorities will interpret it or if it fails to inspire confidence in its longevity.

2. Creates a business case for action: tax policy is more successful when it applies creativity and collaboration to help companies identify the business case for action. It should offer financial incentives and expand the range of companies that can benefit. Conversely, a policy is less effective if the incentives are too small or weak to override other concerns, if it does not accommodate the on-the-ground realities of business, or if it causes unintended harm to the business.

3. Compliance is achievable and worthwhile: tax policy is more successful when the benefits justify the compliance burden. Conversely, a policy is less effective if qualification under stringent terms is difficult or impossible.

4. Built on collaboration: tax policy is more successful when there is strong collaboration between policymakers. A policy is less effective if it conflicts with other policies or if there is a lack of coordination and cooperation among policymakers.

While governments and tax authorities are developing and enacting tax policies to support a just transition to a lower-carbon economy, the outcomes of these policies have been mixed. Some have succeeded in prompting companies to act in alignment with a just transition, while others have not.

Policymakers should consider these key policy attributes as they refine and fine-tune their tax policies. Achieving a just transition benefits everyone — governments, companies and society. The tax system is a potentially powerful lever to help deliver this transition. The challenge now is to create tax policies that will truly assist in making it happen. We hope this report will help.

We are here to help you

Our dedicated energy transition tax team offers unparalleled expertise to help you achieve your energy transition goals and ensure sustained outcomes. At PwC, we provide integrated global solutions that support you from strategy development to execution and value realisation. We also offer technology solutions to help you model key tax developments, including Pillar Two, and to monitor and track key tax data and compliance deadlines. To explore our solutions and services in more detail, contact us today.