Climate change: there will be winners and losers, says Ernst & Young

Billions of dollars in tax incentives mean stakes are high

VANCOUVER , Dec. 18 /CNW/ - As climate change talks wrap up in Copenhagen , Ernst & Young says now is a critical time for Canadian businesses to consider the emerging tax implications of ongoing climate change developments.

In response to the public pressure felt by governments around the world attending Copenhagen , it is expected that there will be a variety of policy shifts relating to climate change at the local and national levels in both the short and long term.

"The reality is that governments only have two options to effect change - a stick and a carrot," says Greg Noble , leader of Ernst & Young's Transfer Pricing group. "The stick is the ability to pass laws and regulations that will punish polluters. The carrot is the ability to create incentives to entice reduction of emissions, promote clean technology and incentivize corporations to develop environmentally sustainable business models."

Noble says that corporations who recognize and take advantage of this changing paradigm will emerge as winners. Conversely, those who resist or remain oblivious to this new reality will be the laggards.

There are two broad implications of these evolving programs. The first is a rapidly emerging global marketplace for carbon credits. Currently, carbon credit programs are fragmented as they are locally administered by the jurisdiction providing the carbon credit.

"For example," says Noble, "BC carbon credits can only be applied to operations within the province of British Columbia, but as this market matures, it is anticipated that a global marketplace for carbon credits will develop. Within five years, there will be a global market for carbon credits - literally billions of dollars will flow through this system. Fortunes will be made and lost."

The second major implication is that there are billions of dollars of tax and non-tax incentives being provided by governments around the world to foster the development of clean technology. These tax incentives are a form of locational savings. Tax incentives are being provided by municipal, provincial and federal governments.

"The problem is that the governments - and therefore the taxpayers - who are providing these tax incentives do not necessarily have control over where the locational saving will ultimately be enjoyed," says Noble. "The government departments providing these tax incentives are not considering the international tax implications of the locational savings."

In many cases, the existing tax treaties that Canada has executed with dozens of nations around the world could potentially result in the cost savings being enjoyed by the parent company, located outside of Canada . In essence, Canadian taxpayers could unwittingly be funding foreign governments.

According to Noble, a new paradigm is unfolding. The key is for Canadian corporations to be on the leading edge of this change. Those leading this transformation are far more likely to thrive and prosper.

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