New technologies for more sustainable economies, and their taxation aspects (First part)

The objective of this blog is to better understand the impacts of emerging industries and businesses resulting from response measures to mitigate climate change, with a view to maximizing their positive effects and minimizing their negative ones. [1]

We present here an annotated list of emerging technologies, industries and businesses, in categories and with a brief description of their nature. Many of them are part of the new technology landscape. But the paradigm of change in the 21st century is that technological change is largely a reflection of environmental imperatives, something that needs to be illustrated.

As we know, the tax administrations of the countries are active players in the intensive use of data and support national efforts towards the UN Sustainable Development Goals, and the NDCs, National Climate Action Plans. Training the human resources to these realities of linking technological and environmental changes is considered as a priority.  We propose here a list of new industrial and service sectors and concepts, which are growing both from technological revolutions and from the need to adapt to the climate crisis that is manifesting itself with increasing speed.  Among the new terms presented here, some are already widespread, others are very recent.  The purpose is to encourage our readers to learn more about these topics.

 

Agriculture and food

Precision farming, crop conservation, alternative proteins: Precision farming, as the name suggests, means the application of a precise and correct volume of inputs such as water, fertilizers, pesticides, etc. at the right time to the crop to increase its productivity and maximize its yields. Vertical farming [2], in which plants are grown without soil and with AI sensors that monitor their growth and nutrients, is rapidly increasing. Crop preservation is the process of maintaining the quality and freshness of harvested crops over an extended period of time. It involves creating controlled environments that minimize the impact of external factors such as temperature, humidity, pests and diseases. As urbanization is increasing worldwide, smart cities must find innovative ways to grow food sustainably, often within built or urban environments.[3]

These changes do not directly affect the taxation of agricultural products, although the use of genetically modified (GM) seeds may cause different taxation rates, in the European Union (for GM products) and in the United States (for the treatment of seeds in general) for example.  The international trend is to seek “tax neutrality” with respect to these innovations.

 

Biotechnologies, bio revolution

Genomics and gene editing: Technologies that give scientists the ability to change an organism’s DNA. Genomics is the study of an organism’s DNA sequences, including genes, their function and evolution. This also includes the computational analysis of the data generated as a result (Big Data). Genomics is not the same as genetics, which focuses more on how traits are passed from one generation to the next. It is the study of the structure, function, evolution, mapping and editing of the complete sets of genetic information encoded in an organism’s DNA. Genomics has revolutionized our understanding of biology and has numerous applications in a variety of fields.

Most applications of genetics are in pharmacology and medicine, but there are also synthetic biology products: companies such as Zymergen, Ginkgo Bioworks and Synthetic Genomics offer products such as biofuels, biodegradable plastics and agricultural products created using synthetic biology methods [4]. Appropriate tax policies should support these products to ensure that “clean” products have an advantage over those that may be harmful.

 

Global Sustainability Concepts

Carbon Pricing (carbon taxes and emissions trading schemes): There are currently 75 carbon pricing instruments in operation worldwide. In 2023, carbon pricing revenues reached a record $104 billion. More than half of the revenue raised was used to fund climate and nature-related programs [5].  Here, tax administrations are the key players in this development, which is essential to stabilizing the climate.  Carbon pricing plays an essential role in the energy transition and can also help stabilize national budgets.

In 2023, the EU ETS generated some 47.5 billion euros in revenue, which was used to finance various public programs and reduce the budget deficit.

Carbon Removal, Capture, and storage – point carbon capture, direct aerial capture of carbon emissions, with the long-range goal of reducing the amount of CO2 already in the air or oceans. In particular, ocean carbon sequestration promises to recycle carbon dioxide much more rapidly than its capture in the air [6]

Circular Economy: Battery recycling, chemical recycling of cellulose, heat recovery, plastics recycling…The circular economy is defined by EU regulations as “a model of production and consumption, which involves sharing, renting, reusing, repairing, renewing and recycling existing materials and products for as long as possible. In this way, the life cycle of most products is extended”.

E-commerce: E-commerce is the exchange of goods and services online. The Internet allows individuals and businesses to buy and sell an increasing amount of physical goods, digital goods and services electronically.

CIAT has devoted many publications to the taxation of e-commerce, the emergence of which has transformed VAT concepts from source-based taxation to taxation based on the place of purchase of a product or service.  Environmentally, e-commerce has both positive (positive: storage, efficiency) and negative (Transportation emissions) environmental impacts.

 

Construction, building, housing

– Innovation in industrial processes-electrification of heat sources, green steelworks, green cement manufacturing.

Trust architecture: a conceptual framework that involves designing and implementing processes, technologies and policies to build trust within a system, network or organization. It is used in many fields, including cybersecurity, information technology, and organizational management.

Smart spaces, also known as connected spaces, refer to physical environments that are enhanced with technology to provide a seamless, intelligent and interactive experience for the people within them.

Building technologies-geothermal heating, heat pumps, electrical equipment.

In many countries, tax treatment has been organized with respect to these changes, e.g. tax incentives for insulating homes and reducing energy consumption. For example, in Europe, the Energy Taxation Directive, (see ETD[7]), and in the USA the Tax Treatment of Energy Rebates. [8]

In part 2 of this blog, we will consider the aspects of Energy, advances in new materials, changes in business procedures, Robotics, ICT and Transportation, with the perspective of continuing to report on the links between environmental pressure, technological changes and regulatory and taxation evolutions.

 

[1] https://unfccc.int/documents/632556

[2] https://theconversation.com/four-myths-about-vertical-farming-debunked-by-an-expert-226675?utm_source=substack&utm_medium=email

[3] https://www.mdpi.com/2071-1050/16/1/355

[4] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10173249/

[5] https://www.worldbank.org/en/news/press-release/2024/05/21/global-carbon-pricing-revenues-top-a-record-100-billion

[6] https://www.businessinsider.com/carbon-dioxide-removal-plant-equatic-commercial-scale-north-america-2024-6

[7] https://kpmg.com/xx/en/home/insights/2021/08/energy-taxation-directive.html

[8] https://www.providencewealth.com/2024/06/25/tax-treatment-of-home-energy-rebates/

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Disclaimer. Readers are informed that the views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group the author might be associated with, nor to the Executive Secretariat of CIAT. The author is also responsible for the precision and accuracy of data and sources.

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