Taxing Energy as Innovation Driver in the European Union

Abstract

A significant European Union’s concern is overcoming dependence on fossil fuels and generating sustainable and environmentally friendly growth. Public decisions must be adopted to ensure this objective considering the widespread agreement about promoting energy change implies a technological transformation derived from R&D. This chapter is focused on the relationship between energy taxation and environmental R&D. The question is whether European taxation’s role is suitable for promoting energy change. The main conclusion is that beyond the fact that green taxes are a low percentage of the total collection, their configurations are more designed to internalise pollution’s cost than favour R&D. Despite energy taxation has been directed at the fundamental objective of revenue collection, it is necessary that public tax policies should be designed considering their role as a driver of environmental R&D. Taxes on traditional energy sources should adapt their structure considering the level of CO2 emissions as well as the impact of investment tax credits on the Corporate Income Tax should be assessed as drivers of environmental R&D. A limitation of this study is the lack of available data to link these incentives to the patents on green energy sources which constitutes an objective to achieve in future research.