Making Green Tax Incentives Work: Protecting Revenue While Accelerating the Energy Transition

Governments are increasingly relying on a diverse mix of fiscal, regulatory, and trade and investment measures often deployed as part of broader industrial strategies to catalyse change. Among these, green tax incentives have emerged as a key instrument to mobilise private investment, lower the cost of clean energy technologies, and accelerate the shift to low-carbon and resilient growth.

Building on the ATI’s ongoing work on environmental taxation, including last year’s ATI workshop series, the session will highlight the importance of cross-government coordination, bringing together ministries of finance, climate and energy policymakers, and industrial strategy institutions to support the design and implementation of targeted incentives that deliver emissions reductions alongside jobs, competitiveness, and economic development.

The use of green tax incentives raises important questions of policy coherence, effectiveness, and accountability. Recent analysis by the International Institute for Sustainable Development (IISD) indicates that many emerging and developing economies are adapting tax policies to support clean investment and renewable energy deployment. In low-income contexts facing administrative and fiscal constraints, tax incentives may sometimes be perceived as a more feasible option than alternative support mechanisms such as feed-in tariffs. However, poorly designed incentives can also generate revenue losses, fail to attract investment, and opportunities for rent-seeking underscoring the importance of governance, targeting, and monitoring.

International experience suggests that incentives are most effective when embedded within a coherent and mutually reinforcing policy framework. A recent paper by the Council on Economic Policies (CEP)  on industrial decarbonisation highlights that such incentives must be aligned with regulatory certainty, sectoral priorities, and robust governance to achieve meaningful emissions reductions. Aligning incentives with national development objectives can further ensure that the green transition strengthens competitiveness, supports industrial upgrading, and expands access to clean energy in an inclusive manner.