Since 1997 the Netherlands has had a tax allowance scheme aimed at promoting investments in energy-saving technologies and sustainable energy production. This so-called Energy Investment Tax Allowance, or EIA to the Dutch, reduces up-front investment costs for firms investing in the newest energy-saving and sustainable energy technologies. The basic design of the EIA has remained the same over the past 15 years: firms investing in technologies listed in an annually updated “energy list” may deduct some of the investment costs from their taxable profits.
Does the scheme work? An OECD working paper, “Lessons from 15 Years of Experience with the Dutch Tax Allowance for Energy Investments for Firms”, draws four valuable lessons. First, it finds that the use of tax revenues to subsidise investment in energy-efficient technologies and renewable energy is not very different from using straight subsidies, as long as budgetary rules impose enough accountability on such tax expenditures. A second finding concerns the risk of “free riding” by firms that would have made the investments even without the tax incentive. This is found to be the policy’s main weakness, but the problem seems to be manageable. A third lesson is that the use of an annually updated energy list makes the regulation flexible, allowing policy to refocus and apply tighter standards if necessary. The list also helps match supply and demand for new technologies.
See full Article: http://www.oecdobserver.org/news/fullstory.php/aid/4163/Cleaner_Dutch_energy:_A_tax_success_.html
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