Lessons from 15 years of experience with the dutch tax allowance for energy investment for firms

31-05-2013 | Publication

In the Netherlands, several fiscal measures exist to stimulate investments in energy saving and emission abatement technologies. This working paper reviews the Dutch Energy Investment Tax Allowance (EIA) over the 1997–2012 period. The EIA allows firms to deduct some of their investment costs in energy saving and sustainable energy technologies from their taxable profits. Over the years, the scheme has been modified several times in response to criticism of its effectiveness.

From this review, four lessons can be drawn:

1) the budgetary turbulence in the early years of the scheme was partly due to a lack of accountability with regard to tax expenditures;

2) although the subsidy scheme's effectivity is gradually improving due to the generic set up of the EIA, it has proven difficult to prevent the free-rider problem;

3) Third, the use of a dynamic technology list means the regulation is flexible, allowing policymakers to refocus or apply more stringent standards, if necessary. The list also reduces information asymmetry between the supply and demand of new technologies and helps suppliers of energy-saving or sustainable energy technologies to overcome the well-known ‘valley of death’;

4) the design of a subsidy scheme should pay sufficient attention to the likely interaction with other policy instruments – in particular other subsidy schemes with complementary objectives, such as renewable energy policies.

PBL Working paper 13