Policy Tools That Support Transition Into a Green Economy

This briefing note from the International Institute for Sustainable Development outlines fiscal policy instruments as tools to facilitate the transition to a green economy, providing case studies from Germany and Canada to illustrate how taxes, subsidies, and levies can incentivize sustainable practices.

• Fiscal policy instruments support the transition to a green economy by providing incentives for sustainable actions, such as renewable energy investment, and disincentives for unsustainable practices, such as burning fossil fuels. These tools include taxation, subsidies, fees, levies, and market mechanisms like emissions trading, and can be used to level the playing field through fossil fuel subsidy reform.
• Germany implemented a revenue-neutral reorganization of motor vehicle taxes in 2008 based on carbon dioxide (CO2) emissions and other pollutants. As of January 2012, vehicles emitting less than 110 grams of CO2 equivalent per kilometre (gCO2e/km) are tax exempt, while those exceeding this limit are taxed €20 for every additional 10 gCO2e/km.
• In Canada, various provinces have used fiscal mechanisms to reduce emissions and encourage clean energy. Examples include Quebec's fuel tax, Manitoba's coal tax, Ontario's feed-in tariff program, and Manitoba's previous hybrid rebate program.
• The implementation of fiscal instruments requires careful consideration of social and economic impacts, particularly regarding jobs and low-income residents. Additionally, there is a preference in Canadian jurisdictions to recycle revenues from these instruments to support green transitions—such as using Manitoba's coal tax for biomass development—or to provide assistance to citizens and industry through low-income programs or tax cuts.

APA

International Institute for Sustainable Development (2013). Policy Tools That Support Transition Into a Green Economy. https://www.iisd.org/system/files/publications/policy-tools-transition-green-economy-fiscal-instruments.pdf

Chicago

International Institute for Sustainable Development. Policy Tools That Support Transition Into a Green Economy. 2013. https://www.iisd.org/system/files/publications/policy-tools-transition-green-economy-fiscal-instruments.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Policy Tools That Support Transition Into a Green Economy |date=September 2013 |url=https://www.iisd.org/system/files/publications/policy-tools-transition-green-economy-fiscal-instruments.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2013policy, author = {{International Institute for Sustainable Development}}, title = {{Policy Tools That Support Transition Into a Green Economy}}, institution = {International Institute for Sustainable Development}, year = {2013}, month = sep, url = {https://www.iisd.org/system/files/publications/policy-tools-transition-green-economy-fiscal-instruments.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }