In 2025, the European Commission released a Recommendation on Tax Incentives to promote investments in renewable energy, and decarbonize its economy. In the same vein, the government of Finland approved 20% climate investment tax credit for companies embarking on green projects.
Climate Investment Tax Credits (CITC) are the incentives offered by a government to encourage investments in clean energy. It is a strategic move to channel capital into climate actions. Just like Finland, many countries usually set benchmarks for climate investment tax credit, which could be 10%, 20%, or even 30%. In the US, CITC was incorporated in the Inflation Reduction Act (IRA) of 2022, thereby given rise to the adoption of tax credits in financing many renewable energy projects. This is simply an enunciation that CITC does not only encourage investments in clean energy but also reduces inflation.
A company building solar farm or wind farm can benefit from CITC. This serves as an incentive to the developer, and a further encouragement to prospective developers looking forward to a similar business. So, where a company expended 50million USD to develop a wind farm of 20MW, the company will be entitled to a tax credit. If the tax credit is set at 30%, the company will be entitled to 15million USD credit. In addition to the reduction in tax payment, the tax credits granted to clean energy developers are mostly transferrable assets which holders can sell to a third party in the market. The company is usually given a tradeable Renewable Energy Certificate (REC) which generates additional revenue after it is sold. Also, holding a REC could mean increase in a company’s net profit, improved dividends, high investor confidence, and opportunity for diversification.
The tax credits given to renewable energy companies by countries is a shift from the conventional tax holiday to performance-based or emission-based incentives with the capacity to propel the mitigation of climate change.
Ultimately, the goal of CITC is to promote sustainable development while cutting down the emissions of greenhouse gas. When CITC is used to unlock renewable energy investments, it impacts a nation’s economy at large by increasing the country’s GDP, and reducing inflation and unemployment.
Written by: Oladele Ajayi
Oladele Ajayi is a lawyer as well as a climate finance and energy buff. He researches and writes on the legal frameworks and the financing of energy transition.
