The Use of Green Tax Incentives for Renewable Energy Deployment in Emerging and Developing Countries
Emerging and developing economies face a USD 2.2 trillion annual investment gap to finance the energy transition. Green tax incentives—like income tax holidays, accelerated depreciation, and import duty relief on clean technologies—can help attract crucial investment. This report reviews how 35 countries design and implement these incentives, evaluates their effectiveness, and outlines best practices to align incentives with broader environmental goals.
Key Findings
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Green tax incentives work best when governments combine them with other policies like national energy plans, power purchase agreements, local content requirements, and affordable financing through public or development banks.
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Emerging markets and developing economies (EMDEs) rely more heavily on profit-based incentives, which often fall short in supporting early-stage projects where companies are not yet profitable. Cost-based incentives can lower risk more directly and unlock investment.
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Governments have increasingly turned to tax incentives to attract green investment. These range from tax rate reductions and accelerated depreciation to customs duty exemptions. However, poorly designed measures can fail to generate meaningful investment, raising both efficiency and equity concerns.
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Tax incentives should evolve as green technology matures, and markets grow.
The accelerating climate and energy crises make it urgent to expand renewable energy and boost energy efficiency. For many developing countries, the challenge is twofold: moving away from fossil fuels while also ensuring affordable, reliable energy reaches populations. Achieving the Paris Agreement’s 1.5°C target means tripling renewable energy capacity and doubling energy efficiency gains by 2030. Yet, investment in green energy remains uneven. Most private capital flows to low-risk, mature markets, leaving many emerging and developing economies grappling with limited fiscal space, high debt, and policy uncertainty.
The use of tax incentives to attract green investment
To attract investment, governments have increasingly turned to green tax incentives, ranging from tax rate reductions and accelerated depreciation to customs duty exemptions. These tools can redirect capital toward climate-aligned projects. But poorly designed or isolated measures can erode public revenue and fail to generate meaningful investment, raising both efficiency and equity concerns.
This report examines how 35 emerging and developing economies design and implement green tax incentives. It explores the trends shaping their use and identifies opportunities to make them more effective.
Participating experts
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