The economist Kenneth Boulding once warned that anyone who believes exponential growth can continue forever in a finite world is either a madman or an economist.

Maintaining respectable economic growth rates is imperative for all countries, and a high level of consumption is now a way of life. Collectively, this has put food, water and energy supplies under increasing pressure. The result has been deteriorating ecosystems, scarcity of natural resources, and global warming.

Governments have started responding to the need for maintaining sustainable growth, and are attempting to lower carbon emissions, recycle waste, encourage efficient use of resources, and promote green innovation. The 2013 Budget with its mantra of ‘higher growth leading to inclusive and sustainable development’ could be considered an example of such growing awareness. The tool governments use to achieve environmental balance through levies and/ or incentives could be called ‘green tax’.

Green tax could either be incentives such as accelerated depreciation, or penalties such as tax on vehicles. In some countries, certain non-tax incentives such as grants or loans are also provided. Broadly, green tax operates in the areas of energy efficiency, green innovation, carbon and climate change, green vehicles, green buildings, water efficiency, pollution control, renewable energy and resource efficiency.

The US tops the KPMG Green Tax Index of countries using green tax incentives and penalties to drive sustainable corporate behaviour and achieve green policy objectives. Japan ranks second overall but, in contrast to the US, scores higher on penalties than incentives. The UK ranks third and has an approach balanced between penalties and incentives. India ranks tenth among the 21 countries studied.

The US tax code provides various incentives, including a production tax credit, on renewable energy. It includes a tax credit for every energy-efficient home built, and tax deduction for the cost of energy-efficient equipment installed in commercial buildings.

The UK imposes the Climate Change Levy — an environmental tax on electricity, gas, solid fuels (including coal), and liquefied petroleum gas to help the country meet its target for cutting emission of greenhouse gases, including carbon dioxide.

Vehicle-related tax penalties are aplenty in Japan, including annual tax based on engine size, tax on purchase of vehicle, vehicle tonnage tax, and so on.

The Netherlands provides accelerated depreciation and deductions on qualifying energy-efficient assets, the impact of which has been a significant reduction in energy consumption and carbon dioxide emissions, and 45 per cent increased investment in energy efficiency over a year.

India, too, has been providing incentives, and of late there has been an increase in penalties.

Accelerated depreciation at 80 per cent on a long list of energy-saving and renewable energy devices.

Carbon tax (introduced in July 2010) of Rs 50 per tonne of coal produced or imported into India.

A 100-200 per cent tax deduction on the revenue and capital expenditure incurred by a company on scientific research (excluding expenditure on land and buildings).

Ten-year tax holiday for companies in the renewable power sector within the first 15 years of operations beginning before March 31, 2014.

Exemptions from indirect taxes include an outright exemption from excise duty on the manufacture of specified machinery related to renewable power generation, and on parts used in the manufacture of wind turbine blades.

Recently introduced 3 per cent hike in excise duty on certain Special Purpose Vehicles. While noting this, the Parliamentary Standing Committee recommended imposition of progressive and innovative levies to raise revenue and foster environmentally sustainable policies.

Businesses could take advantage of incentives in the green tax system such as research and development grants, energy credits, and tax allowances. It is time for businesses to become environmentally responsible, as also aware of the opportunities in it.