The Use of Green Tax Incentives for Renewable Energy Deployment in Emerging and Developing Countries

The report finds that while green tax incentives are widely used in emerging and developing economies, there is a mismatch between the common reliance on profit-based incentives and the actual barriers to investment, such as high upfront capital costs. It argues that these tools are most effective when integrated into broader policy frameworks and transitioned toward market-based mechanisms as sectors mature.

• The use of green tax incentives varies significantly by region; they represent 81% of identified tools in Latin America and 70% in Asia, but only 24% in Africa, where governments rely more on grants and concessional finance.
• Profit-based incentives, such as income tax holidays and reduced rates, are the most common fiscal measures but are often ineffective because they only provide benefits after a project becomes profitable, failing to address high early-stage risks and capital costs.
• Cost-based incentives, including accelerated depreciation and investment tax credits, are underutilized (representing only 21% of the database) despite their ability to improve early cash flow and bankability by reducing upfront costs.
• Indirect tax relief, such as import duty exemptions and VAT relief, accounts for 29% of measures and addresses the high dependence of developing countries on imported equipment, though it may inadvertently hinder the development of local supply chains.
• Most green tax incentives are applied broadly across various technologies rather than being targeted; only 17% of surveyed countries offer technology-specific incentives, which risks over-subsidizing mature technologies like utility-scale solar.
• Tax incentives are most effective when integrated into a coherent policy framework that includes national energy plans, power purchase agreements (PPAs), and the removal of fossil fuel subsidies that distort market price signals.
• Experiences from China and India demonstrate a successful policy sequence: using broad tax incentives and feed-in tariffs (FITs) to scale up early deployment, then transitioning to competitive auctions and performance-linked payments as markets matured.
• The duration of incentives typically ranges between 7 and 10 years, with longer durations often granted to projects in remote or rural areas to achieve socio-economic goals like expanding electricity access.

APA

Mataba, K. (2025). The Use of Green Tax Incentives for Renewable Energy Deployment in Emerging and Developing Countries. International Institute for Sustainable Development. https://www.iisd.org/system/files/2025-09/green-tax-incentives-renewable-energy.pdf

Chicago

Mataba, Kudzai. The Use of Green Tax Incentives for Renewable Energy Deployment in Emerging and Developing Countries. International Institute for Sustainable Development, 2025. https://www.iisd.org/system/files/2025-09/green-tax-incentives-renewable-energy.pdf.

Wikipedia

{{cite report |last1=Mataba |first1=Kudzai |title=The Use of Green Tax Incentives for Renewable Energy Deployment in Emerging and Developing Countries |publisher=International Institute for Sustainable Development |date=September 2025 |url=https://www.iisd.org/system/files/2025-09/green-tax-incentives-renewable-energy.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{mataba2025use, author = {Mataba, Kudzai}, title = {{The Use of Green Tax Incentives for Renewable Energy Deployment in Emerging and Developing Countries}}, institution = {International Institute for Sustainable Development}, year = {2025}, month = sep, url = {https://www.iisd.org/system/files/2025-09/green-tax-incentives-renewable-energy.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }