Tax Design Considerations and other Tax-based Instruments

This chapter considers how the design of environmentally related taxes – the level of the tax, the extent of the tax base and the predictability of the rate – influences the ability to induce innovation. It also explores the effect of measures to address political economy considerations. Attention is then turned to other potential tax-based measures, such as accelerated depreciation allowances and R&ampD tax credits, to address the environmental and innovation challenges. The chapter concludes with a discussion of potential instrument combinations to achieve an optimal outcome.