In a pre-Budget submission, PwC has called for Ireland to support a green-led recovery post-Covid by promoting investment, job creation and socio-economic prosperity.

In a pre-Budget submission ‘Supporting Ireland’s Decarbonisation Journey Through Tax Policy, advisory firm PwC has called on Ireland to introduce new innovative measures and augment existing ones to drive a green recovery following the pandemic.

The submission proposes a comprehensive suite of tax policy proposals including a mixture of introducing new and innovative measures, extending existing measures and reinvigorating older measures with a view to positively signalling Ireland’s commitment to tackling climate change. The ideas presented would also promote investment, encourage job creation and contribute to socio-economic prosperity.

“Tax policy will play a major role not only influencing behaviour towards a sustainable economy, but also encouraging investment and creating jobs in the right areas while boosting a green Covid-19 recovery”

In March 2021, the Government approved the Climate Action and Low Carbon Development (Amendment) Bill 2021 which will set Ireland on the path to net zero emissions by 2050. During the remainder of 2021, there will be substantial developments at an EU level in the fight against climate change, including the 26th UN Climate Change Conference of the Parties (‘COP26’) in November 2021.

PwC said that Ireland has a challenging road ahead with substantial changes required across all sectors, businesses and members of society, but there will also be a lot of opportunities.

ESG: Balancing green with growth

PwC’s 2021 Irish CEO survey revealed that 78pcof Irish business leaders are concerned about the threats of climate change and environmental damage to their future growth prospects. However, only one in five (20pc) plan double digit investment in sustainability and environmental initiatives.

PwC’s Submission proposes a range of potential tax measures which would support the adoption and deployment of renewable energy projects such as the introduction of capital allowances on grid connection costs. Opportunities in the areas of investment and divestment of projects, reviewing the R&D tax credit as well as cash flow considerations within the VAT and relevant contracts tax regime.

PwC said environmental taxes such as excise taxation act as a key deterrent to behaviours that are contrary to our climate action goals. On the other hand, environmental tax incentives such as accelerated capital allowances for energy efficient equipment are a very valuable cash flow benefit for businesses. 

Building on the progress made in Budget 2021, the areas focused on include the further expansion of existing regimes to support a reduction in greenhouse gas emissions and promote investment in energy efficient equipment by businesses. For example, Government could consider extending the Biofuels Obligation Scheme to other sectors where mineral oils are utilised, i.e. to the heating sector where there is already a high usage of fossil fuels.

PwC pointed out that Environmental, Social, and Corporate Governance (ESG) is propelling growth in the financial services sector. 

For example, it said that 100pc of global asset managers with operations in Ireland confirmed in a PwC Ireland hosted webcast that ESG investing will change the global economy in the next 3-5 years. With over 37,000 people in financial services in Ireland, the sector has the people with the skillset, initiative and drive to position Ireland as the leading international centre for ESG products and investments – a ‘Green Finance Hub’.  

The Submission proposes a range of tax measures which would positively impact the establishment of ESG Funds in Ireland in addition to measures that would encourage investment from both Irish and international investors in these Irish based ESG Funds. These measures would be subtle but would be impactful in positioning Ireland as a centre of excellence for ESG innovation. In addition, the Submission proposes measures that are designed to attract key ESG talent to the Irish market that would underpin Ireland’s ability to be leaders in this space

The greatest challenge of our generation

“Climate change is one of the greatest challenges of our generation, requiring wholescale transformation of every sector of our economy, unprecedented innovation and committed leadership,” said Peter Reilly, Tax Policy leader at PwC Ireland.

“Tax policy will play a major role not only influencing behaviour towards a sustainable economy, but also encouraging investment and creating jobs in the right areas while boosting a green Covid-19 recovery.

“PwC’s Green Pre-Budget Submission, focuses on four key areas where we believe tax policy can play a critical role in Ireland’s decarbonisation journey: supporting renewable energy adoption, environmental taxes and incentives, Ireland as a ‘green finance hub’, and incentivising consumer behaviour.”

Among the measures proposed by PwC are:

  • Tax measures supporting the adoption and deployment of renewable energy projects such as the introduction of capital allowances on grid connection costs.
  • Changes to the Employment and Investment Incentive Scheme (EIIS) and the relief for investment in renewable energy generation to further promote investment by individuals and corporates in renewable energy companies.
  • Extension of the Biofuels Obligation Scheme to other sectors where mineral oils are utilised, i.e. to the heating sector where there is already a high usage of fossil fuels.
  • Consider working with the EU to reduce the rate of duty for specific environmentally friendly products.
  • Promote Ireland as a ‘Green Finance Hub’. Implement tax measures which would positively impact the establishment of ESG Funds in Ireland in addition to measures that would encourage investment from both Irish and international investors in these Irish based ESG Funds.
  • Tax measures designed to attract key ESG talent to the Irish market that would underpin Ireland’s ability to be leaders in financial services.
  • Support Ireland’s position as a global aircraft leasing hub. A key measure for this industry would be the extension of the accelerated capital allowances regime to apply to energy efficient/sustainable fuel type aircraft for the aircraft leasing sector would be game-changing. 
  • Proposal to review Ireland’s approach to retrofitting including considering a ‘Help to Insulate’ scheme in order to incentivise retrofitting properties. 
  • Consider property tax credits for retrofit costs; reduced capital gains tax on sale of properties that have been retrofitted.
  • Tax measures focusing on two key aspects of consumer behaviour and mobility: the use of public transport and the adoption of electric vehicles.
  • Introduce a tax deduction for commuting expenses and reintroduce tax relief for investment in park and ride facilities.

By John Kennedy (john.kennedy3@boi.com)

Published: 3 June 2021