Tax policies to reduce carbon emissions
The 2021 Tax Reform Proposals included a new "carbon neutrality investment incentive", which provides the opportunity for either accelerated depreciation or a tax credit for companies that invest in assets or infrastructure leading to reduced carbon emissions. The EBC supports the use of tax incentives as a tool to promote behaviour that will reduce carbon emissions, but as with many other tax incentives introduced by the Japanese Government in this and past tax reform proposals, the incentives do not go far enough to stimulate the desired results.
- Greater use of tax incentives to encourage companies to reduce their carbon emissions. This may be done by one or more of the following: (i) increasing the scope of assets and infrastructure covered by the incentive, (ii) increasing the amount of the tax credit; (iii) simplifying the process for obtaining the tax incentives. Moreover, the Japanese Government should also consider more aggressive use of a high carbon tax as a penalty for failing to reduce carbon emissions, which may be more effective at changing corporate behaviour than the proposed carbon neutrality investment incentive, which rewards reductions in carbon emissions.