Making green tax incentives work: insights from the ATI-IISD-CEP webinar on fiscal sustainability and the energy transition

On 2 June the joint ATI–IISD–CEP webinar Making green tax incentives work: Protecting revenue while accelerating the energy transition took place virtually, gathering around 80 participants. The session was moderated by Leila Kituyi, Manager for Strategic Partnerships and International Cooperation at the African Tax Administration Forum (ATAF). Anchored in Action 1 of the Seville Declaration on DRM, under which members have committed to environmentally sensitive tax policies and a just transition, the session set out to address three guiding questions: when and how green tax incentives can support low-carbon growth while protecting revenue; how they interact with other instruments such as carbon pricing and standards; and what lessons can be drawn across high-income and low- and middle-income country contexts.

Presentation: Green tax incentives in emerging and developing economies

Kudzai Mataba, Policy Advisor in the Economic Law and Policy Programme at IISD, opened with findings from a 2025 IISD study covering 35 emerging markets and developing economies. She framed green tax incentives as targeted tax relief intended to shift private capital toward climate-aligned investment by improving the return on green activities — stressing that the term reflects policy intent in design, not outcomes, so that actual effects must be established through evaluation. The backdrop is a financing gap that is both enormous and concentrated: tripling renewables in line with 1.5°C scenarios requires around USD 12 trillion of power-system investment by 2030, with recent acceleration concentrated in China, the EU, and the US. Developing countries alone need to mobilise over USD 2.4 trillion by 2030.

The study finds that reliance on tax-based instruments varies dramatically across regions: from 81% in Latin America and 70% in Asia down to 24% in Africa and 10% in the Middle East, where governments lean more on VAT and import-duty exemptions, feed-in tariffs, grants, and auctions. Across the sample, fiscal incentives dominate (59% of all identified measures), while cost-based incentives remain underused (21%) and only 17% of countries deploy technology-specific tools. Mataba emphasised that the recurring shortcomings are matters of governance rather than ambition: incentives are often too broad and untargeted, revenue losses are poorly reported, legal regimes overlap, durations are mis-set, and incentives frequently sit in policy silos, disconnected from the broader climate and industrial strategy landscape.

Presentation: Incentives within coherent policy frameworks

Sofia Berg, Fellow at CEP, presented a recent CEP paper on accelerating industrial decarbonisation and the role of tax incentives across electricity, road vehicles, hydrogen, steel, cement, and petrochemicals. Her central message was that incentives are a component, not the strategy: decarbonising heavy industry, which is both a major source of emissions and a pillar of economic competitiveness and innovation, requires integrated policy packages in which tax incentives work alongside carbon pricing, regulation, public investment, and procurement. She illustrated this with the US Investment Tax Credit and Production Tax Credit, which played a major role in expanding wind and solar power (with investment estimated to be roughly one-third lower in their absence) but still depended on grid expansion and storage to deliver results.

On design, Berg stressed getting the timing right: Incentives can be mis-set in both directions, too long (wasting revenue) but also too short to trigger the intended investment. It is essential using sunset clauses, carry-forward provisions for capital-intensive sectors, caps, and performance-based structures to balance effectiveness against fiscal discipline. She also flagged distributional considerations, observing that consumer incentives such as those for electric vehicles can be regressive, and the importance of assessing pass-through for VAT-related measures, where the benefit may be captured by producers rather than reaching consumers. Her bottom line: target innovation and first-of-a-kind projects, secure fiscal sustainability through clear objectives and transparent monitoring, and adapt incentives over time as technologies mature.

Panel discussion: Aligning incentives with revenue, climate, and industrial strategy

Tantely Ravelomanana, Head of the Tax Policy Unit at Madagascar’s Ministry of Finance, described how Madagascar, a country with significant solar and green hydrogen potential, has since 2012 offered cost reductions of around 30%, customs facilities for renewable-related products such as batteries and turbines, and selected tax reductions, with a visible effect on renewable energy uptake. She noted that, from 2023, a sectoral decree and inter-ministerial coordination have shaped the agenda, while flagging a familiar tension: ministries of finance can act as a brake on line ministries, given their competing concern to protect revenue.

Hadi Setiawan, Senior Policy Analyst, Directorate of Taxation Strategy, Directorate General of Economic and Fiscal Strategy, Ministry of Finance of Indonesia, highlighted Indonesia’s commitment to transparency: since 2022 it has reported climate-related tax expenditures in its tax expenditure report and ranks first in the Global Tax Expenditures Transparency Index, above the advanced economies. He presented the EV sector as the clearest evaluation case: a luxury-goods sales tax set to zero for electric vehicles coincided with EV sales rising 96% year-on-year in the most recent year, and the EV share of the total vehicle market climbing from around 2% in 2022 to 16% in 2026, with incentives differentiated between locally assembled and imported vehicles and time-bound sunset provisions built in. His lessons: incentives should be treated as policy instruments rather than mere fiscal concessions, packages of instruments outperform isolated measures, and fiscal incentives must be paired with a supportive regulatory environment.

Herman Vollebergh, Senior Research Fellow at the Netherlands Bureau for Economic Policy Analysis (CPB), brought a long-run perspective from a country with a fossil-fuel background, tracing Dutch energy taxation back to a 1990 energy tax. He framed incentives as one side of a coin whose complement is fossil-fuel taxation: first tax, then incentivise. Dutch support is targeted specifically at technologies that substitute fossil fuels, with targeting improvement over time, and is structured so that a subsidy is only provided where the cost of the cleaner technology exceeds the market price of the fossil alternative to limit free riding. He emphasised that the goal of such incentives is not revenue but emissions reduction, and that close cooperation between the ministries of finance, economic affairs, and energy is essential.

Open discussion and Q&A

The discussion returned continually to evaluation. Asked how the effectiveness of incentives is assessed in Madagascar, Ms Ravelomanana explained that its law makes a qualitative and quantitative review obligatory every three years, with the timing deliberately chosen so that effects are not judged prematurely. A further exchange explored how import-linked EV incentives in Indonesia can be tied to local production commitments, with benefits clawed back if firms do not match imported volumes with domestic production within a set period. A recurring thread across the session was that incentives deliver most when they are targeted, time-bound, regularly evaluated, and embedded within a coherent mix of carbon pricing, regulation, and public investment rather than operating in isolation.

Closing reflections and next steps

The session reinforced the shared message that, designed and governed well, green tax incentives can advance decarbonisation, economic development, and a just transition while safeguarding the revenue base that finances them. In the near future, the ATI, in collaboration with IISD and other partners, plans further peer-learning sessions on green fiscal policy reform and carbon pricing under the environmental taxation workstream of Consultative Group 1. Additionally, CEP and the ATI invited participants to its next Community of Practice on Tax Expenditures on 11 June 2026, jointly organised with IDOS and featuring a presentation by IISD, focusing on tax incentives for investment.