International Fiscal Cooperation to Better Integrate Public and Private Efforts on Sustainability: The Case of Carbon Offset Credits

Abstract

Currently, carbon offset credits are gaining momentum in the voluntary and compliance markets. Many investors, private companies, or public entities look at them as a way to implement or supplement their decarbonization strategies. These tools are easily available to utilize for meeting the declared sustainability goals by compensating carbon emissions that are impossible or just hard to mitigate. At the same time, they can serve to comply with the regime of nationally determined contributions according to the Paris Agreement. However, they often pose challenges from a public and private perspective, both in a domestic or multinational scenario. There is a blatant lack of legal certainty concerning their treatment for tax purposes. This affects the agents involved in the different processes of the carbon offset credits’ lifecycle (their generation, trade, and use). The growing nature of this problematic situation simultaneously derives from qualitative and quantitative factors. A greater dose of international cooperation among the stakeholders is needed to provide balanced solutions between public and private interests. Special attention should be paid to the developing and developed countries’ positions. The following pages describe the state of the art and explain what the main concerns are with regard to the application of these credits in the framework of the existing tax systems. In many cases, carbon taxes are not mature enough, or their interaction with other economic instruments is not well defined. The innovative work of the United Nations Subcommittee on Environmental Taxation in this regard is reviewed. In an attempt to sort out the observed obstacles due to the configuration and features of the schemes up to date, some alternative proposals are mentioned. Final remarks stress that future regulations should not only facilitate but ensure a global positive environmental impact on society in line with the UN 2030 Agenda. Public finances, particularly, tax legislators and authorities have a decisive role to play in this uncharted area.