CEPS Ideas Lab
The tax system can be a powerful lever to accelerate the just transition, by incentivising innovation, driving behaviour change, the net-zero transition and internalising the cost of GHG emissions. However, and despite the impact of policies like the Inflation Reduction Act and progress on carbon pricing, especially in the EU, tax can be an effective tool for change.
Environmental externalities are not fully incorporated into asset prices at present. But investors (from households to asset managers, insurers or pension funds) can provide powerful incentives to integrate environmental sustainability into business operations. A plethora of instruments is currently discussed under the European Commission Action Plan such as taxonomy, disclosure requirements for investors, low-carbon benchmarks, non-financial corporate reporting, credit and sustainability ratings, green bonds standards, eco-labels for retail financial products. Will they be able to ‘move the trillions’ of investable funds?
After Brexit, the UK financial sector will lose access to the Single Market under the various passport regimes. While equivalence rules offer some alternative to passporting, they are available only for certain regulated activities. Equivalence decisions can also be withdrawn unilaterally by the authority granting them, be that the UK or the European Commission. There are also concerns about the increasing politicisation of the process. Given the UK’s departure from the EU, and its stance against necessarily maintaining strict alignment or rules, the question arises how the respective regulatory autonomy of the EU and UK can be maintained while continuing to recognise the equivalence of each other’s regimes. What additional regulatory and supervisory arrangements might be put in place alongside the existing equivalence regimes?
Britain’s departure from the EU poses challenges for European capital markets with far-reaching implications. Perhaps the most important is the call for full integration and the need to create a single unified capital market. The CMU project has been focused on the development of capital markets, mainly at national level, as alternatives to banking, and less on actions that will remove cross-border obstacles (e.g. harmonization of insolvency laws, taxation and company laws).