Whether the U.S. chooses a cap-and-trade scheme as passed in the House’s climate bill in June or adopts a carbon tax, there will be tax implications for all types of businesses in many aspects of their operations, according to a white paper from Deloitte.
The Deloitte whitepaper, A Climate for Change? Tax Implications of U.S. Greenhouse Gas Regulation, describes general approaches to climate change legislation and the resulting implications for tax policy. The paper focuses on a cap-and-trade program and the role of taxes in efforts to directly limit GHG emissions.
A cap-and-trade system raises two tax-related issues, according to the white paper. The first is whether a tax designed to discourage activities that result in greenhouse gas (GHG) emissions would be more desirable than a regulatory approach, and the second is whether the tax treatment of various assets, liabilities, and transactions under a cap-and-trade system is sufficiently defined, according to the paper.
Some have suggested a carbon tax as an alternative to a cap-and-trade system, which would reduce emissions by placing a direct tax on the production, distribution, or emission of carbon and possibly other GHGs, reports Deloitte. This could be done at the same points at which a cap-and-trade program would require allowances, according to the paper.
In theory, a GHG tax could achieve the same results as the granting of free allowances and offset credits by providing tradable GHG tax exemptions, according to the paper. However, to meet the desired GHG reductions under a carbon tax system, the actual tax on GHG emissions would have to be set at a level sufficient to make excess emissions more costly than mitigation strategies, cites the paper.
Deloitte says it would not be surprising to see climate change regulation, in terms of its business impact, to be regarded in the same way as securities regulation, food and drug safety regulation, financial services regulation or employee retirement income security rules.