A Clean Breakthrough in the Environmental Tax Codes

Environmental tax law comes in a variety of forms, but in essence, environmental tax laws either impose a direct tax expenditure on an environmentally harmful act or behavior, or they provide a tax credit to an environmentally beneficial activity. In the past, federal and state governments have used a variety of methods to implement such taxes, from outright tax discrimination based on race, gender, occupation, or other discriminatory factors to tax incentives provided for polluting activities, such as those related to oil drilling or coal production. Additionally, environmental tax law has been utilized in areas related to increasing pollution levels, with the common use of carbon trading and cap and trade programs as well as requiring certain emissions standards for specific types of products and energy sources. For these programs, a tax may be levied as an “emission penalty” if the amount of pollution exceeds a pre-determined level.


New York’s Carbon Pollution Control Act

In recent years, environmental taxes have received more focus than ever on both the federal and state level. New York’s Carbon Pollution Control Act is a good example of this, imposing a fee on various types of commercial and industrial emissions, including those related to oil and gas drilling and coal production. Similarly, California’s Cap and Trade Program also imposes a carbon tax on a large scale, though the current legislation concerning the program is currently being debated in Congress. Similarly, in Washington State, a bill introduced in June 2021 would require the state’s Department of Revenue to generate a detailed report on the costs of climate change and create a greenhouse gas tracking program. Similarly, the European Union is considering a similar bill.


Revenue Regulations that establishes the tax incentives

But even within the United States, environmental taxes are administered. The Internal Revenue Service, for example, issues Revenue Regulations that establishes the tax incentives available to businesses and individuals. Those regulations detail how such taxes will be applied, who is eligible for them, and how they are computed. The Internal Revenue Code is itself an example of comprehensive tax law. That being said, some aspects of the tax code are often considered controversial, including the taxation of residential and small personal property used for purposes not specified in the law, the application of a 25 percent offshore effective tax rate to foreign income, and the offshore private investor treatment of U.S. businesses.


the United States has received some international accolades for its efforts to combat pollution

On the positive side, the United States has received some international accolades for its efforts to combat pollution and greenhouse gases, and the country’s leadership has taken a strong public stance on these environmental issues. As a result, American businesses are eager to take advantage of the tax laws currently in place. Many state governments, as well as the Internal Revenue Service, are encouraging Americans to invest in green businesses and green jobs by offering tax credit, subsidies, and other reductions. Additionally, several federal and state programs offer consumers rebates on purchases and sales that are green-related, further strengthening the case for investing in green products and services.


Section 12b tax law offers an array of benefits to purchase or sell renewable energy sources

The most important aspect of the law, however, deals with the environmental tax incentives available to consumers. Section 12b tax law offers an array of benefits to those choosing to purchase or sell energy conserving or renewable energy sources. Specifically, the section provides tax relief to consumers who purchase energy-efficient appliances and systems, reduce their use of air conditioning and heating, and implement and maintain energy-saving measures. Additionally, consumers may receive a section 12b tax break on the purchase and installation of efficient appliances and systems. Finally, the section provides tax relief to real estate professionals who invest in green developments and improvements.


the development and adoption of green technologies and energy saving practices

In short, while the United States has long been a laggard in the development and adoption of green technologies and energy saving practices, recent developments in the tax code are encouraging both domestic and global investors to reallocate resources away from fossil fuel-based sources and towards green projects and innovative energy-saving strategies. While many nations, like the United Kingdom and France, have implemented substantial infrastructure investment in research and development related to green technologies, the United States remains far behind in both investment and awareness. With the additional investment in the form of the carbon tax, the United States is well on its way to taking the lead in the development and implementation of large scale renewable energy projects, like the carbon trading initiative and the commercialization of cellulosic ethanol facilities, while developing and implementing new clean coal technologies.

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